Longevity swaps for longevity risk management in life insurance products

2020 ◽  
Vol 21 (3) ◽  
pp. 253-269 ◽  
Author(s):  
Canicio Dzingirai ◽  
Nixon S. Chekenya
Keyword(s):  
South Africa ◽  
South African ◽  
Life Insurance ◽  
Regime Switching ◽  
Longevity Risk ◽  
The South ◽  
Conditional Heteroscedasticity ◽  
Content Type ◽  
Vector Autoregressive ◽  
Long Run

Purpose The life insurance industry has been exposed to high levels of longevity risk born from the mismatch between realized mortality trends and anticipated forecast. Annuity providers are exposed to extended periods of annuity payments. There are no immediate instruments in the market to counter the risk directly. This paper aims to develop appropriate instruments for hedging longevity risk and providing an insight on how existing products can be tailor-made to effectively immunize portfolios consisting of life insurance using a cointegration vector error correction model with regime-switching (RS-VECM), which enables both short-term fluctuations, through the autoregressive structure [AR(1)] and long-run equilibria using a cointegration relationship. The authors also develop synthetic products that can be used to effectively hedge longevity risk faced by life insurance and annuity providers who actively hold portfolios of life insurance products. Models are derived using South African data. The authors also derive closed-form expressions for hedge ratios associated with synthetic products written on life insurance contracts as this will provide a natural way of immunizing the associated portfolios. The authors further show how to address the current liquidity challenges in the longevity market by devising longevity swaps and develop pricing and hedging algorithms for longevity-linked securities. The use of a cointergrating relationship improves the model fitting process, as all the VECMs and RS-VECMs yield greater criteria values than their vector autoregressive model (VAR) and regime-switching vector autoregressive model (RS-VAR) counterpart’s, even though there are accruing parameters involved. Design/methodology/approach The market model adopted from Ngai and Sherris (2011) is a cointegration RS-VECM for this enables both short-term fluctuations, through the AR(1) and long-run equilibria using a cointegration relationship (Johansen, 1988, 1995a, 1995b), with a heteroskedasticity through the use of regime-switching. The RS-VECM is seen to have the best fit for Australian data under various model selection criteria by Sherris and Zhang (2009). Harris (1997) (Sajjad et al., 2008) also fits a regime-switching VAR model using Australian (UK and US) data to four key macroeconomic variables (market stock indices), showing that regime-switching is a significant improvement over autoregressive conditional heteroscedasticity (ARCH) and generalised autoregressive conditional heteroscedasticity (GARCH) processes in the account for volatility, evidence similar to that of Sherris and Zhang (2009) in the case of Exponential Regressive Conditional Heteroscedasticity (ERCH). Ngai and Sherris (2011) and Sherris and Zhang (2009) also fit a VAR model to Australian data with simultaneous regime-switching across many economic and financial series. Findings The authors develop a longevity swap using nighttime data instead of usual income measures as it yields statistically accurate results. The authors also develop longevity derivatives and annuities including variable annuities with guaranteed lifetime withdrawal benefit (GLWB) and inflation-indexed annuities. Improved market and mortality models are developed and estimated using South African data to model the underlying risks. Macroeconomic variables dependence is modeled using a cointegrating VECM as used in Ngai and Sherris (2011), which enables both short-run dependence and long-run equilibrium. Longevity swaps provide protection against longevity risk and benefit the most from hedging longevity risk. Longevity bonds are also effective as a hedging instrument in life annuities. The cost of hedging, as reflected in the price of longevity risk, has a statistically significant effect on the effectiveness of hedging options. Research limitations/implications This study relied on secondary data partly reported by independent institutions and the government, which may be biased because of smoothening, interpolation or extrapolation processes. Practical implications An examination of South Africa’s mortality based on industry experience in comparison to population mortality would demand confirmation of the analysis in this paper based on Belgian data as well as other less developed economies. This study shows that to provide inflation-indexed life annuities, there is a need for an active market for hedging inflation in South Africa. This would demand the South African Government through the help of Actuarial Society of South Africa (ASSA) to issue inflation-indexed securities which will help annuities and insurance providers immunize their portfolios from longevity risk. Social implications In South Africa, there is an infant market for inflation hedging and no market for longevity swaps. The effect of not being able to hedge inflation is guaranteed, and longevity swaps in annuity products is revealed to be useful and significant, particularly using developing or emerging economies as a laboratory. This study has shown that government issuance or allowing issuance, of longevity swaps, can enable insurers to manage longevity risk. If the South African Government, through ASSA, is to develop a projected mortality reference index for South Africa, this would allow the development of mortality-linked securities and longevity swaps which ultimately maximize the social welfare of life assurance policy holders. Originality/value The paper proposes longevity swaps and static hedging because they are simple, less costly and practical with feasible applications to the South African market, an economy of over 50 million people. As the market for MLS develops further, dynamic hedging should become possible.

scholarly journals Analysis of the Keynesian Theory of Employment and Sectoral Job Creation: The Case of the South African Manufacturing Sector

2018 ◽  
Vol 18 (1) ◽  
pp. 123-143
Author(s):  
Thomas Habanabakize ◽  
Paul-Francois Muzindutsi
Keyword(s):  
South African ◽  
Manufacturing Sector ◽  
Job Creation ◽  
The South ◽  
Economic Sectors ◽  
Vector Autoregressive ◽  
Integration Approach ◽  
Long Run ◽  
Short Run ◽  
Investment Spending

Abstract The manufacturing sector is one of the backbones of the South African economy, and yet is one of the economic sectors facing challenges in job creation. This study analysed the long-run and short-run effects of aggregate expenditure components on job creation in the South African manufacturing sector. A Vector Autoregressive (VAR) with Johansen co-integration approach was used to analyse quarterly data from 1994 to 2015. The findings are that there is a long-run relationship between aggregate expenditure and job creation in the South African manufacturing sector, with government and investment spending being the major components of aggregate expenditure that create jobs in the South African manufacturing sector. Conversely, consumption spending destroys jobs in the manufacturing sector, while net exports have no significant effect on job creation. The short-run relationship between variables was not significant. Recommendations are that more effort should be put into investment spending, and government should spend more on investment than on consumption spending - in order to increase job creation in the manufacturing sector.

scholarly journals The Contribution of Foreign Direct Investment (FDI) To Domestic Employment Levels in South Africa: A Vector Autoregressive Approach

2019 ◽  
Vol 11 (1(J)) ◽  
pp. 110-121
Author(s):  
Bongumusa Prince Makhoba, ◽  
Irrshad Kaseeram
Keyword(s):  
Economic Growth ◽  
South Africa ◽  
Least Squares ◽  
South African ◽  
Empirical Analysis ◽  
Negative Relationship ◽  
Ordinary Least Squares ◽  
Series Data ◽  
The South ◽  
Vector Autoregressive

Several empirical works have yielded mixed and controversial results with regard to the effects of FDI on employment and economic growth. The primary focus of this study is to investigate the contribution of FDI to domestic employment levels in the context of the South African economy. The analyses of the study were carried out using the annual time series data from 1980 to 2015. The macroeconomic variables employed in the empirical investigation include employment, FDI, GDP, inflation, trade openness and unit labour costs. The study used secondary data from the South African Reserve Bank and Statistics South Africa database. The study estimated a Vector Autoregressive/ Vector Error Correction Mechanism (VAR/VECM) approach to conduct empirical analysis. However, the study also employed single equation estimation techniques, including the Ordinary Least Squares (OLS), Fully Modified Ordinary Least Squares (FMOLS), Dynamic Ordinary Least Squares (DOLS) and Canonical Cointegrating Regression (CCR) models as supporting tools to verify the VAR/VECM results. This study provides strong evidence of a significant negative relationship between FDI and employment levels in the South African economy. Empirical analysis of the study suggests that the effect of economic growth on employment is highly positive and significant in South Africa’s economy. The study recommends that policymakers ought to invest more in productive sectors that aim to promote economic growth and development to boost employment opportunities in South Africa.

Sustainable housing financing model to reduce South Africa housing deficit

2017 ◽  
Vol 10 (3) ◽  
pp. 410-430 ◽  
Author(s):  
Bashir Olanrewaju Ganiyu ◽  
Julius Ayodeji Fapohunda ◽  
Rainer Haldenwang
Keyword(s):  
South Africa ◽  
South African ◽  
Affordable Housing ◽  
Low Income ◽  
Low Cost ◽  
South African Government ◽  
The South ◽  
African Government ◽  
Content Type ◽  
Mortgage Payment

Purpose This study aims to identify and establish effective housing financing concepts to be adopted by government in achieving its mandate of providing sustainable affordable housing for the poor to decrease the building of shacks, as well as proposing solutions to the housing deficit in South Africa. A rise in demand and shortage in supply of housing calls for the need to address issues of affordable housing in South Africa, and developing countries in general, to ensure a stable and promising future for poor families. Design/methodology/approach Literature has revealed that the South African government, at all levels, accorded high priority to the provision of low-cost housing. Thus, government has adopted subsidy payment as a method of financing affordable housing to ensure that houses are allocated free to the beneficiaries. This also addresses the historically race-based inequalities of the past, but unfortunately, this has not been fully realised. This study uses a sequential mixed method approach, where private housing developers and general building contractors were the research participants. The qualitative data were analysed using a case-by-case analysis, and quantitative data were analysed using a descriptive statistical technique on SPSS. Findings The results of the qualitative analysis reveal a gross abuse of the housing subsidies system by the beneficiaries of government-funded housing in South Africa. This is evident from illegal sale of the houses below market value. This has led to a continual building of shacks and an increased number of people on the housing waiting list instead of a decrease in the housing deficit. The results from quantitative analysis affirm the use of “Mortgage Payment Subsidies, Mortgage Payment Deductions, Down-Payment Grant and Mortgage Interest Deductions” as viable alternatives to subsidy payment currently in use to finance affordable housing projects by the South African Government. Practical implications At the moment, the focus of the South African National Government is continual provision of free housing to the historically disadvantage citizens, but the housing financing method being used encourages unapproved transfer of ownership in the affordable housing sector. This study thus recommends the use of an all-inclusive housing financing method that requires a monetary contribution from the beneficiaries to enable them take control of the process. Originality/value The relational interface model proposed in this study will reduce pressure on government budgetary provision for housing and guarantee quick return of private developers’ investment in housing. Government must, as a matter of urgency, launch a continuous awareness programme to educate the low-income population on the value and the long-term benefits of the housing.

Professional accounting education programmes in South Africa and India

2014 ◽  
Vol 4 (1) ◽  
pp. 97-116 ◽  
Author(s):  
Lesley Stainbank ◽  
Devi Dutt Tewari
Keyword(s):  
South Africa ◽  
International Education ◽  
South African ◽  
Single Point ◽  
Secondary Data ◽  
Relevant Information ◽  
Accounting Education ◽  
The South ◽  
Content Type ◽  
Education Model

Purpose – The purpose of this paper is to provide a contextual analysis of the professional accounting education programmes in South Africa and India by benchmarking both programmes to the International Education Standards (IESs) of the International Federation of Accountants (IFAC). Design/methodology/approach – The research methodology is a qualitative archival approach extracting information from secondary data (Statements of Membership Obligations’ compliance questionnaires available on the IFAC web site and information from the web sites of the relevant professional accountancy bodies). Findings – With regards to the IESs, the study found that both countries comply with the standards, although important differences occur. In South Africa, most of the education takes place during the university phase; and while both countries cover the content requirements, India covers the acquisition of professional skills more formally; ethics is taught and examined in both countries; both countries require a three year training contract; both countries have a final examination but the content of the examinations are different; and South Africa requires more continuous professional development than India. These findings, when related to India's and South Africa's relative positions on certain of the Global Competitiveness Indices may indicate that India could learn from the South African accountancy education model in order to strengthen the Indian position with regards to auditing and reporting standards. Research limitations/implications – A limitation of the study is that it did not investigate the quality of the relative education programmes and it benchmarks both programmes at a single point in time. Practical implications – India could strengthen its accounting profession by implementing some of the South African aspects of its education model. South African could consider adopting the flexibility in the entry requirements in the Indian education model in order to increase the number of accountants in South Africa. These findings may also be useful to other developing countries to identify practices which could be adopted if suitable in their respective countries. Originality/value – The study is original as accountancy education programmes in India and South Africa have not been contrasted before. In view of their similar colonial background and the fact that both countries are major economic and political forces in their respective regions, the value of this study is that it provides useful and relevant information to India, South Africa and other countries with similar economic and social backgrounds.

Pathways through homelessness: the perceptions of homeless children in Pietermaritzburg, South Africa

2020 ◽  
Vol 15 (3) ◽  
pp. 141-160
Author(s):  
Anna Wilshire Jones Bornman ◽  
Carol Jean Mitchell
Keyword(s):  
South Africa ◽  
South African ◽  
Well Being ◽  
South African Context ◽  
Homeless Children ◽  
The South ◽  
Research Attention ◽  
Content Type ◽  
Factors Influencing ◽  
African Context

Purpose The purpose of this study was to explore children’s pathways through homelessness within the South African context, with particular attention paid to pathways out of homelessness. This study focusses on factors influencing children’s successful transitions out of homelessness. Design/methodology/approach A qualitative exploratory design was used, using interviews with nine children who had exited or were in the process of exiting homelessness. Interviews were conducted at a children’s shelter in Pietermaritzburg or in the children’s home environments. Interviews were analysed thematically. Findings An ecological framework was used to frame the factors influencing children’s pathways in, through and out of homelessness in the children’s narratives. These included institutions, relationships and intrapersonal strengths and resources. The study suggested that constructive relationships with shelter staff and parental figures, as well as intrapersonal strengths, were the most prominent factors in children successfully negotiating their way through their homelessness. The importance of a relationship with the paternal family within some African cultures was also a point of leverage. Research limitations/implications Implications for policy and practise include the need for systemic change, as well as greater support for shelters and shelter staff. The issue of rivalry in the shelter context and the role of the paternal family in the reintegration process require more research attention. The research is limited to homeless children in Pietermaritzburg, South Africa. Practical implications This study provided feedback to the shelter regarding their strategies for assisting homeless children off the streets. It further provided evidence for the importance of the work of the shelter, to strengthen advocacy efforts. This may be useful to others in similar circumstances. Social implications This study highlights the importance of macrosystemic interventions in the efforts to assist homeless children, while at the same time not ignoring the inter and intra, personal elements to enhancing their well-being. Originality/value This paper is singular in its exploration of factors influencing children’s successful transitions out of homelessness within the South African context.

scholarly journals The Impact of Productivity, Investment and Real Wages on Employment Absorption Rate in South Africa

2019 ◽  
Vol 8 (12) ◽  
pp. 330 ◽  
Author(s):  
Thomas Habanabakize ◽  
Daniel Francois Meyer ◽  
Judit Oláh
Keyword(s):  
South Africa ◽  
South African ◽  
Absorption Rate ◽  
Labour Productivity ◽  
Series Data ◽  
The South ◽  
Real Wages ◽  
Long Run ◽  
Investment Spending ◽  
The Impact

Many developing countries are facing high levels of unemployment and most people who are employed are poorly remunerated due to low skills and productivity levels. Although jobs are important, a productive job is even more important, not only for employees, but also for employers. South Africa, being a developing country, is also facing the challenge of dramatically high levels of unemployment. This study’s aim was to examine both the short- and long-term impacts of real wages, labour productivity and investment spending on employment absorption rates in South Africa. To establish the existing relationship between variables, the study applied several econometric approaches, such as an autoregressive distributed lag (ARDL) model, error correction model (ECM) and a Toda–Yamamoto causality analysis on quarterly time series data from 1995Q1 to 2019Q1. The results revealed the existence of both short- and long-run relationships among the variables. While a positive relationship was found between employment absorption, investment spending and labour productivity, it was found that real wages negatively impact on long-run employment absorption rates. Additionally, the short-run analysis indicated that the lagged employment absorption rate influences the current rate of employment. Furthermore, the causality tests indicated that a bi-directional causal relationship exists between employment absorption and investment spending; and a uni-directional relationship between employment and both real wages and labour productivity. Based on the findings, the study recommends increments of investment spending and labour productivity that enables the South African economy to carry out more activities that would require more workers, thereby improving the employment absorption rate. The fact that labour productivity positively impacts the employment absorption rate infers the requirement for quality and skilled workers to be absorbed in the South African labour market. Therefore, labour skills improvements appear to be a prerequisite for productivity enhancement and job creation.

“Justice delayed is justice denied”

2015 ◽  
Vol 25 (3) ◽  
pp. 288-305 ◽  
Author(s):  
Mpho Ngoepe ◽  
Salmon Makhubela
Keyword(s):  
South Africa ◽  
South African ◽  
Justice System ◽  
Records Management ◽  
The South ◽  
Criminal Cases ◽  
Content Type ◽  
Record Keeping ◽  
The Media ◽  
African Media

Purpose – The purpose of this study is to investigate the cases of “delayed and denied” justice that resulted from a lack of or poor record-keeping in the South African courts and police service with a view to encouraging proper records management. Proper records management plays a significant role in supporting the justice system. Records provide the critical evidence that a particular action or transaction took place and can be used as evidence in a court of law. Without reliable and authentic records, government cannot administer justice and, as a result, offenders can be set free while the victims are denied justice. Design/methodology/approach – Utilising content analysis, this study extracted print media articles (2000-2012) relating to the “records and justice system” from the South African Media database, which is one of the databases hosted by the South African Bibliographic and Information Network. The study selected cases reported in the media to conduct follow-up interviews with a policeman, lawyer and judge to discover the implications of the unavailability of required records in court cases. Furthermore, access was given to three selected cases that were given high profile in the media and these cases were analysed to find out what the final verdict in each case was. Findings – Results of the study suggest that some criminal cases were withdrawn due to missing dockets or cases not properly registered. In some instances, records were reconstructed, resulting in the travesty of justice. The study concludes by arguing that if records are not accounted for, lawyers, prosecutors and magistrates could dispute the authenticity of records. As a result, justice for victims would be delayed and ultimately denied while the perpetrators are freed. Research limitations/implications – The findings and recommendations of this study may go a long way in helping courts in South Africa to manage records properly to support the justice system. Furthermore, the study is a useful compilation of the importance of missing records for social purposes. Originality/value – In an attempt to show the role of records management in the administration of justice in South Africa, this study used a triangulation of data collection tools. This is a new attempt, especially in the South African context. Previous studies in southern Africa only looked at the management of records in supporting justice system.

scholarly journals The Effects of Foreign Resource Inflow and Savings on the Economic Growth of South Africa: A VAR Analysis

2014 ◽  
Vol 6 (3) ◽  
pp. 232-241
Author(s):  
Temitope L. A.
Keyword(s):  
Economic Growth ◽  
South Africa ◽  
South African ◽  
Impulse Response Function ◽  
Vector Autoregressive ◽  
Var Analysis ◽  
Long Run ◽  
Domestic Savings ◽  
Low Levels ◽  
Using Data

This study adopts both the Vector Autoregressive (VAR) analysis and the Impulse-Response Function (IRF) to examine the importance and the effects of domestic savings and foreign direct investment (FDI) on South African economy, using data spanning over the period 1975 to 2011. While the level of domestic savings is quite low, compared to other emerging economies, South Africa has also been struggling to attract inflow of foreign resources. The form of savings in South Africa is different from the western way of savings; hence the low levels of domestic savings. The variables considered were tested for stationarity and they were all stationary before proceeding to test for cointegration and then estimate and VAR. The cointegration test revealed that there was at least one cointegrating equation; which signifies that there exists a long-run relationship among the variables. The results from the VAR Granger test of causality depicted that domestic savings lead economic growth, while economic growth leads investment. This result of the IRF also showed that while increased domestic savings is important to improve the level of economic growth in South Africa, it also leads FDI. This means that the economic environment needs to be suitable in order to attract foreign investments. The results obtained are reliable and stable as the model passes a battery of diagnostic tests. The study proposes some recommendations for policy.

scholarly journals “Ubuntu” I am because we are: COVID-19 and the legal framework for addressing communicable disease in the South African prison system

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Marie Claire Van Hout ◽  
Jakkie Wessels
Keyword(s):  
South Africa ◽  
Occupational Health ◽  
South African ◽  
Communicable Disease ◽  
Legal Framework ◽  
Prison System ◽  
Mitigation Measures ◽  
System Response ◽  
The South ◽  
Content Type

Purpose The purpose of the paper was to conduct a legal-realist assessment of the South African prison system response to COVID-19. Severely congested and ill-resourced prison systems in Africa face unprecedented challenges amplified by COVID-19. South Africa has recorded the highest COVID-19 positivity rate in Africa and, on March 15th 2020, declared a national state of disaster. The first prison system case was notified on April 6th 2020. Design/methodology/approach A legal-realist assessment of the South African prison system response to COVID-19 in the 12 months following initial case notification focused on the minimum State obligations to comply with human rights norms, and the extent to which human, health and occupational health rights of prisoners and staff were upheld during disaster measures. Findings A legal-realist account was developed, which revealed the indeterminate nature of application of South African COVID-19 government directives, ill-resourced COVID-19 mitigation measures, alarming occupational health and prison conditions and inadequate standards of health care in prisons when evaluated against the rule of law during State declaration of disaster. Originality/value This legal-realist assessment is original by virtue of its unique evaluation of the South African prison system approach to tackling COVID-19. It acknowledged State efforts, policymaking processes and outcomes and how these operated within the prison system itself. By moving beyond the deleterious impacts of the COVID-19 pandemic on the already precarious South African prison system, the authors argue for rights assurance for those who live and work in its prisons, improved infrastructure and greater substantive equality of all deprived of their liberty in South Africa.

scholarly journals The Sectoral Employment Intensity of Growth in South Africa

2019 ◽  
Vol 23 ◽  
Author(s):  
Njabulo Innocent Mkhize
Keyword(s):  
South Africa ◽  
South African ◽  
Output Growth ◽  
Job Seekers ◽  
The South ◽  
Tertiary Sector ◽  
Business Services ◽  
Jobless Growth ◽  
Long Run ◽  
Sectoral Composition

Concerns have been expressed recently about the inability of the South African economy to provide adequate employment for the increasing number of job seekers. This paper investigates how sectoral employment intensity of output growth in the eight non-agricultural sectors of the South African economy has evolved in the period from the first quarter of 2000 to the fourth quarter of 2012, with a view to identifying key growth sectors that are employment intensive. Empirical findings of the study suggest that total non-agricultural employment and GDP do not move together in the long run, implying that jobless growth occurred in South Africa during the period under review. This supports the view that South Africa has become less labour-intensive and more capital-intensive. Results of a sectoral composition confirm a long-run relationship between employment and growth in the finance and business services, manufacturing, transport and utilities sectors. In particular, the results suggest that sectors within the tertiary sector are the best performing sectors in terms of employment intensity of output growth, reflecting the changing structure of the economy and the nature of employment shifting away from primary towards the tertiary sector. Investment in the tertiary sector is necessary to foster new employment opportunities and can assist in improving overall employment intensity in South Africa.

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