1008. Mr A P van der Westhuizen (DA) to ask the Minister of Labour:

(1) What did the reserves of the Unemployment Insurance Fund amount to on the last day of the (a) 2007-08, (b) 2008-09, (c) 2009-10, (d) 2010-11 and (e) 2011-12 financial years;

Minister of Labour respond:

Please note that 2011/2012 figures are un-audited and subject to change based on the actuarial valuation report for 2011/2012 which is expected in May 2012.

(2) whether an actuarial calculation has been done on the risks and the amounts needed to cover possible claims against the fund; if not, why not; if so, what where the amounts for the (a) 2007-08, (b) 2008-09, (c) 2009-10, (d) 2010-11 and (e) 2011-12 financial years;

Minister respond:

An actuarial valuation is done annually by an independent actuary as prescribed by the Unemployment Insurance Act No. 63 of 2001, section 9. Calculations are done based on current and expected future economic conditions taking into account all possible risks and the payment history/historical data of the Unemployment Insurance Fund. Provision is made for the following, as per the Unemployment Insurance Fund's actuarial valuation:

Technical reserve for "unearned contribution revenue" (UCR)

The Technical Reserve represents that part of the current year's contributions that relates to risk periods that extend over the following four years. This is reflected as a technical reserve in the statement of financial position.

Based on actuarial valuation a portion of the net surplus is allocated to Technical Reserves on an annual basis as per the Statement of changes in Net Assets. The actuarial valuation is calculated at reporting date using a range of standard actuarial claim projection techniques. Based on empirical data, adjusted for wage inflation and current assumptions are taken into consideration, which may include a margin of adverse deviation.

The Fund adopted a policy on assessing required UCR reserves whereby a weighted average risk rate of 50/30/20 for the most recent three years subject to a minimum of 1.10% of the 2% contributions would be used in determining the applicable risk contribution rate.

Estimated reported benefits payable (ERBP)

Employees became unemployed claimants and started receiving payments during the period under consideration. Provision is made on a prudent basis for the estimated final cost of all claims that had not been settled at the reporting date, less amounts already paid.

The estimated reported benefits payable is calculated at the reporting date using a range of standard actuarial claim projection techniques, based on empirical data and current assumptions that may include a margin of adverse deviation. Adjustments to estimate reported benefits payable and the movement on reported benefits payable are recorded in the statement of financial performance at each reporting date.

The estimated reported benefits payable is calculated using the BCL-method (Basic Chain Ladder Method). The BCL-method involves projecting the total cumulative claim amounts. The liability is calculated by subtracting all amounts already paid to date. Claims handling expenses are taken into account. Actuarial calculations are not discounted for the time value of money.

The liability is derecognised when the beneficiaries' credit days are exhausted or the four year period lapse and a new credit cycle is started.

Claims incurred but not reported (IBNR)

Provision is also made for claims arising from insured events that occurred before the reporting date, but had not been reported by that date. The estimated claims incurred but not reported (IBNR) is calculated at the reporting date using a range of standard actuarial claim projection techniques, based on empirical data and current assumptions that may include a margin of adverse deviation. Adjustments to estimated claims incurred but not reported (IBNR) and the movement is recorded in the statement of financial performance at each reporting date. Actuarial calculations are not discounted for the time value of money.

The liability is derecognised when the beneficiaries' credit days are exhausted or the four year period lapse and a new credit cycle is started.

ERBP = Estimated Reported Benefits Payable

IBNR = (Claims) incurred but not reported

UCR = Unearned Contribution Reserve

Please note that the current provision for 2011/2012 is based on the actuarial valuation for 2010/2011 and is subject to change on receipt of the actuarial valuation report which is due in May 2012.

(3) whether her department's projections show any increase in the number of claims compared to the number of claims during the last financial crisis; if not, why must the fund maintain its reserves at the levels that it has maintained in the past five years; if so, what are the relevant details?

MINISTER RESPOND:

As per the actuarial valuation report of 2010/2011, the effects of the economic crisis have subsided hence there has been an increase in surplus growth for the year 2011 when compared to 2010. The economic crisis led to a deeper recession and subsequently higher job losses than the actuaries had anticipated in their economic impact report for the year 2010. The claims in 2011 were however very close to those projected in a mild recession case scenario. In line with the actuaries' expectations, the unemployment claims have since stabilised well within the 24 months' time frame.

The Unemployment Insurance Fund's annual actuarial valuation report is only expected in May 2012. As indicated in (1), the reserves are re-assessed annually based on economic conditions and risks which are taken into account. The Unemployment Insurance Fund will revise its reserves for 2011/2012 based on the actuarial report for 2011/2012.

NW1190E

Issued by Parliament, May 30 2012

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