nottheaverageactuary

Actuarial news and views from Cape Town and beyond


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Subordinated debt

The others have covered the other sources of capital, so I decided to cover the subordinated debt.

According to the ActEd notes, subordinated debt is: debt issued by an insurer, in which the repayment of debt that is guaranteed only after policyholders’ reasonable expectations have been met.

And the Investopedia on the web says it is a loan that ranks below other loans with regard to claims on assets or earnings.

According to this article: http://www.moneyweb.co.za/news/economy/uncertainty-over-bank-subordinated-debt/, the global banking industry is expecting the implementation of Basel IV regulations (capital requirement regulatory framework for banks, as Solvency II for insurers) and how these regulations will lead to higher capital requirements. In response, South African banks are expected to issue more subordinated debt as a result, but the banks are likely to be cautious as African Bank was placed under curatorship by the Reserve Bank last year.

The article also touches on uncertainties that arose as a result of the curatorship of African Bank. The subordinated debt holders argued that the curatorship does not necessarily mean a bank failure and that the subordination of their instruments not be applied.

It is also interesting to note how the dominant players in the South African banking industry, namely: Nedbank, FirstRand and Standard Bank all raised their spread on their subordinated debt after the collapse of African Bank, reflecting the perception of increased risk.

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Burning Man Insurance

Obviously, this is of much interest for me 🙂 A US company is now offering insurance for Burning Man participants.

I’ve scanned the application form and FAQ. My favourite bits:

“Pyrotechnics and Fireworks are not the same as Propane Flame Effect. Bodily injury and property damage resulting from Pyrotechnics and Fireworks is excluded. There is NO EXCLUSION for bodily injury or property damage resulting from Propane Flame Effects! Just be careful out there!”

“Number of Years attending Burning Man” seems to be used as a rating factor. Fabulous! Presumably, if you’ve been driving a modified vehicle under the influence while using a Propane Flame Effect, getting lots of practice at it (and surviving thus far) is a great rating factor 🙂

Otherwise, remarkably few questions. I think it’s to avoid scaring the underwriters.

🙂

 

 


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New draft Retirement Regulations out!

Hot off the press – the National Treasury has just published a new set of draft regulations for retirement funds. The announcement is here, and the new regs are here.

Basically, the NT is asking all funds to put in place low cost, simple defaults for investment choices, buying annuities at retirement, and for preservation.

What does that mean for funds? What problems are these regulations addressing, do you think?