Browsing by Author "Melville, William George"
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- ItemInvestigation into the appropriateness of the South African microinsurance solvency capital regulation(Stellenbosch : Stellenbosch University, 2019-04) Melville, William George; Burgess, Stephen; Stellenbosch University. Faculty of Economic and Management Sciences. Department of Statistics and Actuarial Science.ENGLISH ABSTRACT : In South Africa, there are two different regulatory capital requirement options for insurers selling microinsurance products. The first is the capital requirement for traditional insurers under the SAM framework. The second is a simplified requirement that would be applicable to registered microinsurers. This thesis provides a systematic comparison of these two requirements. The nominal value of each requirement is compared using a model microinsurer that has been calibrated using industry data. It was found that the simplified microinsurance requirement resulted in less capital required than the SAM requirement for traditional insurers. The comparison was extended by comparing the change in requirements if the risk profile of the microinsurer changed. It was found, as would be expected, that the simplified microinsurance requirement was not as sensitive to changes in the risk profile. The level of protection under each requirement was also assessed. This was done using various deterministic and stochastic tests. The deterministic tests involved stressing variables individually and collectively. The stochastic tests involved calculating the probability of insolvency for the model microinsurer over a one-year period. This showed that both capital requirements resulted, for the model microinsurer, in an insolvency probability of less than 0.5%, as required by SAM. However, it also showed that the lack of risk sensitivity of the simplified microinsurance capital requirement could result in significantly higher insolvency rates if the risk profile of the microinsurer changed. The results of the tests performed also showed that it may, under certain circumstances, be acceptable to reduce the absolute minimum capital requirement under the specialised microinsurance licence. This should assist with lowering barriers to entry for small microinsurers. However, the reduction may not be sufficient to encourage informal funeral insurance providers to register with the regulator which was one of the goals of the microinsurance licence. Thus, it is concluded that the simplified requirement could be adjusted to be more risk sensitive. This could result in a lower absolute minimum and encourage formalisation.