All posts by David Kirk

David Kirk is a partner at KPMG running the national actuarial consulting practice. He is an actuary and is the creator of New Business Margin on Revenue. He specialises in risk and capital management, Solvency II and insurance strategy . He also has extensive experience in embedded value reporting, insurance-related IFRS and share option valuation. Apart from his work in South Africa, he has been involved in significant insurance projects in the Middle East and China. David began his career at Tillinghast – Towers Perrin in 2002 where his work experience included embedded value work in life insurance and reinsurance, life insurance appraisal value calculations, stochastic guarantee pricing, and building and reviewing economic scenario generators. He worked in both the London and Cape Town offices, gaining exposure to the insurance markets, products and regulatory environments in South Africa, the UK and Europe. David then headed up the Johannesburg actuarial practice for PricewaterhouseCoopers as a partner with core responsibilities around life insurance, general insurance, financial and risk management and business development. David is an active member of the ASSA’s Life Assurance Committee and Embedded Value subcommittee, chairs the Micro-insurance Committee and chairs the Technical Provisions Task Group as part of the Financial Services Board’s Solvency Assessment and Management (SAM) Project. He has lectured parts of undergraduate and postgraduate courses at the University of Cape Town, the University of Stellenbosch and the Lebanese University. He is an assessor and instructor for the Institute of Actuaries Business Awareness Module. David is a Fellow of the Institute of Actuaries (FIA) and a Fellow of the Actuarial Society of South Africa. He holds a B.Bus.Sci degree in actuarial science and finance from the University of Cape Town, is CFA Charterholder, a Chartered Alternative Investment Analyst (CAIA) and a Certified Professional Risk Manager (PRM).

Modest data

I’m as excited as the next guy about the possibilities of “Big Data!” but possibly more excited about the opportunities presented by plain old “Modest Data”. I believe there is plenty of scope for useful analysis on fairly moderate data sets with the right approach and tools.

I’d go as far as to say that many of the “Big Data!” stories and analysis currently performed is really plain old statistical analysis with a few new touches from the ever-expanding list of R libraries.

For example, it seems that papers with shorter titles get more citations by other researchers.  Although the research considered 140,000 papers, there is nothing especially “Big Data!” about the analysis. The paper and authors suggest several possible causes related to the quality of the journal, period of time etc. Disappointingly, they don’t seem to have modelled these possible effects directly to understand whether there is any residual effect.

There is scope for great analysis without “Big Data!” and plenty of scope of poor analysis with all the data in the world.

South Africa ranks 2nd in financial inclusion study

The Brookings Financial and Digital Inclusion Project measures South Africa one place behind Kenya in terms of financial inclusion.

I’m still working my way through the full report, but Kenya’s score is a significant jump above South Africa and the closely contested positions below it. Is Kenya genuinely making such inroads or is this a function of the measures used?

The worst insurance policy in the world

Aviva in France is still dealing with having written the worst insurance policy in the world. From the sounds of things, they weren’t alone in this foible. It’s also hard to say as an outsider what the right or reasonable resolution to their current problem is, but here is the policy that they wrote.

  • Buy a policy
  • Choose what funds you want to invest in
  • Unit prices calculated each Friday
  • Allow policyholders to switch funds on old prices until the next week
  • Hope like hell policyholders don’t switch out of poorly performing funds into well performing funds with perfect information based on backwards, stale prices.

Inconceivable – and since I don’t know more than I read on this blog post, maybe the reality and liability is really quite different.

See the post from FT Alphaville on the man who could own Aviva France.

Economic growth during and after Apartheid and the real problem with 1%

I read a letter from Pali Lehohla on news24 this weekend. Lehohla, the head of StatsSA, disagreed with a report by DaMina Advisors on economic growth in South Africa during and post the apartheid era.

To paraphrase Lehohla, he disagreed with their methodology, their data and their values and ethics:

First, I need to engage the author on methods. Second, I address the facts. Third, I focus on the morality of political systems and, finally, I question the integrity of the luminaries of DaMina and ask them to come clean.

This wasn’t data I had looked at before, but some of Lehohla’s criticisms seemed valid. Using nominal GDP growth data is close to meaningless over periods of different inflation.

Second, the methodology of interpreting economic growth should use real growth instead of nominal growth because this carries with it differing inflation rates. This is to standardise the rates across high and low inflation periods.

I haven’t confirmed the DaMina calculations, but the labels in their table do say “current USD prices” which suggests they have used nominal data. It’s little wonder any period including the 1970s looks great from a nominal growth perspective with nominal USD GDP growth in 1973 and 1974 being 34% and 23%, compared to real growth of 2.2% and 3.8%. The high inflation of the 1970s arising from oil shocks and breakdown of the gold standard distorts this analysis completely.

Lehohla’s other complaint is also important, but less straightforward to my mind –

The methods that underpin any comparison for a given country cannot be based on a currency other than that of the country concerned. The reason is that exchange-rate fluctuations exaggerate the changes beyond what they actually are.

Two problems here – one is that purchasing power adjusted GDP indices are not typically available going far back in history. The other is that if one is using real GDP, the worst of the problems of currency fluctuations are already ironed out. (The worst, certainly not all and it would still be a factor that should be analysed rather than completely overlooked.)

I was disappointed that neither piece mentioned anything at all about real GDP per capita. Does it really matter how much more we produce as a country if the income per person is declining? Income inequality aside, important as it is, more GDP per capita means more earning power per person, more income per person, more things per person. It is a far more useful measure of prosperity for a country, and particularly for comparing economic growth across countries with different population growth rates.

My own analysis, based on World Bank data (available from 1960 to 2013)

real GDP growth (annual %) real GDP per capita growth (annual %)
1961-1969 6.1% 3.5%
1970-1979 3.2% 1.0%
1980-1989 2.2% -0.3%
1990-1999 1.4% -0.8%
2000-2009 3.6% 2.0%
2010-2013 2.7% 1.1%
1961-1990 3.6% 1.2%
1971-1990 2.4% 0.1%
1991-2010 2.6% 1.3%
1991-2013 2.6% 0.8%


I’ve put these numbers out without much analysis. However, it’s pretty clear that on the most sensible measure (real GDP per capita) over the periods the DaMina study considered, post-apartheid growth has been better than during the 1971-1990 period of Apartheid.

The conclusion is reversed if one includes the 1960s Apartheid economy and the latest data to 2013, the picture is reversed on both measures.

This, above all else, should talk to the dangers of selecting data to suit the outcome.

This analysis doesn’t talk to the impact of the gold standard, the low cost of gold mining closer to the surface than it is now, the technological catch-up South Africa should have benefited from more in the past, the impact of international sanctions and expenditure on the old SADF and who knows what else. There are much big monsters lurking there that I am not equipped to begin to analyse.

My overall conclusion? The Apartheid days were not “economically better” even without ignoring the millions of lives damaged. Unfortunately, our economic growth has for decades been too low to progress our economy to provide a better life for all.

Here is the problem:

1961-2013 1961-2013
Real GDP growth Real per capita GDP growth
South Africa 3.2% 1.0%
Kenya 4.6% 1.3%
Brazil 4.3% 2.3%
USA 3.1% 2.0%

Despite the theory of “Convergence“, the US has had double South Africa’s per capita GDP growth for over five decades.  Real GDP per capita increased by 72% in South Africa over the entire period from 1960 to 2013, which sounds impressive until you realise that the US managed 189%. That is more than 2.5x our growth Brazil has done even better at 237%. “Even Kenya” outperformed us over this period.

1% per annum real per capita GDP growth is just not good enough.

Foreign land ownership

Foreign person? Foreign company? Foreign trust? Local company owned by foreigners? Local company owned partly by foreigners? Foreign company owned by locals? Local company owned by locals with debt finance from foreigners?  Local bank with foreign shareholders and repossessed properties? Local insurance company issuing policies to foreigners? BRICS bank? Foreigner married in community of property to local? Local living permanently overseas?

You don’t even need to look at this proposal being counterproductive, populist silliness.

Summary of November links

These are some of the stories I’ve followed or commented on in November:

  • Pro-cyclical fiscal policy from Nigeria. Knee-jerk reactions are usually not the right answer
  • eVoting seems error-prone and fraud-suspect around the world. Good luck Namibia…
  • IASB: re-deliberations will extend into 2015. Performance measurement, participating contracts still unresolved
  • Namibia has the second highest house-price inflation in the world of 29% every year – second to Dubai
  • Please stop using SA85-90 “combined” as your base mortality table
  • 2014 mid-year EV analysis
  • MG digs dirt, eventually, on 2002 Zimbabwe elections. Asks some thought provoking questions about election monitoring
  • Consolidation in Kenyan life insurance sector. More needed, more to come surely.
  • Doing business on our continent isn’t always easy.
  • Selective lapse impacting mortality?
  • Why model structure matters, not just passing the calibration tests
  • The inevitable growth of solar energy. Declining prices help emerging markets with plenty of sunshine. #Africa…
  • The Beveridge curve and long term unemployment.