Spartan
Caselaw
ACTUARIAL CASE LAW REVIEW
Issue 133 – Monday 9 September 2024
ACTUARIAL – Loss of income – Pre-morbid scenario – Contingency deductions – Patient had pre-existing learning difficulties cognitive in nature – Not guaranteed to find employment – Rendered unemployable in open labour market post-accident – Periodic loss of employment accounted for – Likely to earn remuneration commensurate with lower quartile of earnings for unskilled workers – Non-corporate sector – Contingency deduction of 25% on pre-morbid applied.
Facts: A 16-year-old passenger (the patient) was involved in a motor vehicle accident which diminished his future employment prospects. Following the accident, the patient sustained the injuries that include a traumatic head injury with brain damage and residual cognitive communicative and behavioral problems. Following the lodgement of his claim with the Road Accident Fund (RAF), the court is called upon to decide on the appropriate pre-morbid contingency deductions.
Pre-morbid scenario: In most RAF matters involving children, the hypothesis which is founded on the oxymoron that the future of a child can be guesstimated by looking into the past is to the detriment of most African children, whilst unfairly advantaging others. Sadly, this hypothesis continues to sentence many African children to unskilled labourers, whilst elevating others to top management when postulating the pre-morbid scenario. This is not only contra bonos mores but also both archaic and anachronistic. With the pre-existing learning difficulties which are cognitively rather than linguistically based and all the challenges listed in the educational psychologist’s report, the court finds this postulation unmeritorious. To postulate that the patient would have started work in 2018 is improbable. With the unemployment rate hovering above 33% and scores of unemployed unskilled, semi-skilled and even skilled able-bodied men at every corner of hardware stores, ready to offer their labour for a measly pay, the court is not persuaded.
Assessment: Looking at the patient’s pre-morbid challenges, it is difficult to conceive how he would have secured employment in 2018. If he did, would he have kept it for long? He was not guaranteed to find employment. His pre-morbid scenario was, probably, a life of searching for sympathetic employment; otherwise, he was, like thousands from all the corners of Africa, some with matric certificates whilst others with degrees, destined to a life of periodic employment. Unless the South African economic trajectory changes dramatically, drastically and fast, some of these guesstimates are simply unattainable. The scenario sketched out by the industrial psychologist is viewed as being conservative and, in all probability, would have been arrived at by several industrial psychologists when confronted with the same set of facts. The court is often confronted by implausible projections, which leave it with more questions than answers.
Findings: The court is not persuaded that pre-morbid, the patient would have earned a remuneration commensurate with median of earnings for unskilled workers employed in the non-corporate sector of the labour market and moved to upper quartile at 45. The parties have agreed on the 10% contingency deduction for past loss of earnings. Furthermore, they have agreed that the patient has been rendered unemployable in the open labour market post-accident. Regarding the pre-morbid scenario, to arrive at what is just and equitable, a new baseline should be forwarded to the actuary for calculation. Thereafter, a 25% contingency deduction can be applied.
Order: The plaintiff is ordered to obtain a new pre-morbid actuarial calculation. The court gives directions on the annual salary according to the 2024 Quantum Yearbook. A contingency deduction of 25% on the pre-morbid would then be applied to the figures.
MOTHA J
ACTUARIAL – Loss of income – Disability grant – Patient’s mobility has been affected by severe brain injury – Impairment relating to self-care and daily living activities – Requires assistance – Past care-giving expenses – Expert evidence all point to a need for patient to be taken care of together with her child – Court a quo incorrectly found that patient was capable of taking care of herself when record indicates contrary – Finding on deduction not based on any evidence and completely arbitrary – Appeal succeeds.
Facts: The history of the matter emanates from a third-party claim instituted against the respondent for damages suffered by Ms Setlhodi (the patient) as a result of injuries sustained from a motor vehicle accident. The trial proceeded undefended and only the appellant proceeded with various expert reports produced. The court a quo granted an order in terms of Rule 38(2) of the Uniform Rules of Court for the admission into evidence of the expert reports confirmed by affidavits. The only witness who testified was the mother of the patient, Ms Setlhodi. Her evidence was mainly about the patient, her grandson who is the patient’s child and their domestic environment after the accident.
Appeal: Against the judgment of the court a quo, in which the judge found the respondent liable for 100% of the appellant’s proven damages because of a motor vehicle collision. An amount of R9,500,000 was awarded in full and final settlement of the appellant’s claim for general damages and loss of earning capacity. The amount of R8,000,000 was for loss of earning and R1,500,000 for general damages. The claim for care giving was dismissed and a deduction of the amount of R580,888 from the capital amount of loss of earning was made by the court a quo. Central to this appeal is the dismissal of the care giving expenses and the deduction from the loss of earning capacity.
Past care-giving costs: It was argued that the court a quo made a finding that the patient can take care of herself and her grandchild when such evidence was never produced by Ms Setlhodi. The evidence of the neurosurgeon was that the patient’s mobility has been affected by severe brain injury which resulted in significant long term neurocognitive and neuropsychiatric sequelae. The expert opined that the patient’s neuropsychological status is permanent. The occupational therapist concluded that the patient suffered impairment relating to self-care, personal hygiene and activities of daily living. Further, that she could not sustain relationships, concentration, persistence and pace. The patient would become destitute if the mother is no longer able to assist with her care, as well as the care of the child. The appellant made out a case for the award of care-giving expenses. The evidence by the experts all point to a need for the patient to be taken care of, together with her child. The court a quo incorrectly found that the patient was in fact capable of taking care of herself when the record indicates the contrary. That was a misdirection by the court a quo.
Loss of income and disability grant: The actuarial calculations on future loss of income came to an amount of R8,580,888. There was no indication from the judgment of the court a quo how the deduction of R580,888 was arrived at. There was no evidence led on the social grants received by the patient except the report by the curator ad litem which refers to the social grant received by the patient. The court a quo’s finding on the deduction was not based on any evidence and completely arbitrary. This is a material misdirection, and the unsubstantiated finding should be set aside. The amount calculated for loss of earnings should be increased to R8,850,888.
Order: The appeal succeeds with costs. The defendant is to pay the plaintiff the nett amount of R10,471,925.
DJAJE DJP (PETERSEN J and MORGAN AJ concurring)
ACTUARIAL – Loss of income – Child – Head injuries – Expert opinion that child’s performance will progressively deteriorate – School reports indicate that minor’s average remains 10% plus above grade average – No deterioration could be established in school reports because of accident – Continues to attend mainstream school post-accident – Sleeper effect could not be established – Not rendered unemployable – Recovered well – Contingency of 90% applied – R900,492.10.
Facts: The minor child was injured when she was crossing a road, when the driver of the insured vehicle traveling at a high speed overtook a stationary vehicle and collided with the minor child on the road surface, but on the insured vehicle’s incorrect side of the road near the pavement on the opposite side of the road. The child was 8 years old at time of accident. The minor child sustained a head injury, bruises over her forehead, a mid-shaft humerus fracture on the right and a radial nerve palsy on the right. The minor child was rebuttably presumed to be doli incapax at the time of the accident.
Claim: The plaintiff claims damages from the defendant in a representative capacity arising from injuries sustained by the minor when she was injured. The plaintiff sued for future loss of earnings/earning potential and general damages in the total amount of R8,020,000 as a result of the injuries sustained.
Assessment: The psychiatrist opined that the minor’s performance during the mental state assessment was in his opinion inconsistent with her report of academic performance in 2019 and he was concerned about either a deterioration in her neurological status over time or the appearance of the so called “sleeper effect” due to which her performance will progressively deteriorate over the coming years. He accordingly recommended a formal neuropsychological assessment which assessment should be preceded by a hearing screening and assessment. From the court’s assessment of all the minor’s school reports, it is evident that the minor’s average remains 10% plus above the grade average from Grade 1 to Grade 9, Term 2 for the year 2024. The minor’s average percentage pre- and post-accident in relation to the grade average is also consistent and remains consistent 10% plus above the grade average.
Loss of earnings: No deterioration could be established in the minor’s school reports because of the accident. The minor continues to attend a mainstream school post the accident. The “sleeper effect” could also not be established. Premised on the analysis of the school reports, the court disagrees that the minor is rendered unemployable. She recovered well in the circumstances to live a normal life. Mr Immermann, the actuary, filed a further report based on recommendations of the industrial psychologist’s report. On the assumptions, he proposed Basis I certificate level of education but for the accident R7,929,414 with a 20% contingency and a nett future loss of R6,343,531. Basis II diploma level of education but for the accident R10,080,428 with a 20% contingency and a net future loss of R8,064,342. The average of Basis I and Basis II of the actuary’s further report is best suited to the minor’s circumstances with a contingency of 90% to be applied. The average amount of R9,004,921 after applying the contingency, is therefore R900,492.10 for loss of income/earning capacity for the minor.
Order: The defendant shall make payment to the plaintiff, in his representative capacity on behalf of the minor, KM, the amount of R900,492.10.
ALLEN AJ
16 August 2024
MDALANA-MAYISELA J
PERSONAL INJURY – Unlawful arrest and detention – Malicious prosecution – Unlawful possession of explosives – Pointed out by witness at identification parade – Defendant failed to adduce evidence proving arresting officer entertained a reasonable suspicion – No prima facie case against plaintiff when decision to prosecute case was made – Jurisdictional requirements not complied with – Defendant liable for unlawful arrest and detention and malicious prosecution.
Facts and issue: The plaintiff instituted an action for damages against the defendants. The damages arose from the plaintiff’s alleged unlawful arrest and detention by members of the first defendant (Minister of Police), and malicious prosecution by the second defendant (NDPP). The plaintiff and other three suspects were arrested without a warrant and detained at Linden Police Station. The plaintiff was charged with unlawful possession of explosives, unlicensed firearms and ammunition.
Prescription: The Minister raised a special plea of prescription in relation to unlawful arrest and detention. The arrest and detention through to withdrawal of the charges is continuous. The prescription commenced to run from 18 November 2020 when the plaintiff was released from custody. The summons was issued and served well within three years of the plaintiff obtaining knowledge of the identity of the debtor and the facts from which the debt arises. Accordingly, the special plea of prescription must fail.
Liability assessment: After searching the plaintiff and a red Renault car, the arresting officer arrested the plaintiff and detained him at Linden police station. He did not state in his arresting statement the reason why he arrested the plaintiff. It is clear from the contents of his arresting statement that he had no legal basis to arrest the plaintiff. His conduct was arbitrary and without just cause. The Minister failed to adduce evidence proving that the arresting officer entertained a suspicion, that the suspicion was that the plaintiff had committed schedule 1 or 5 and 6 offences and that the suspicion rested on reasonable grounds. The Minister has also failed to adduce evidence showing that the arresting officer during the execution of the arrest, exercised a discretion whether to arrest the plaintiff. The plaintiff’s arrest was unlawful. The detention unlawfully deprived him of his freedom.
Malicious prosecution: The NDPP did not have such information as would lead a reasonable man to conclude that the plaintiff had probably been guilty of the offences charged with. The same reason of lack of evidence stated on the chargesheet for the withdrawal of charges almost 9 years after the decision to prosecute was made, should have been the reason for declining to prosecute the plaintiff in the Linden case. The prosecution of the plaintiff was unlawful, unjustifiable and malicious.
Order: The special plea of prescription is dismissed with costs. The first defendant is liable for 100% of the plaintiff’s proven damages for unlawful arrest and detention. The second defendant is liable for 100% of the plaintiff’s proven damages for malicious prosecution.
3 September 2024
MONENE AJ
RAF – Loss of income – Contingencies – Inability to hold and lift heavy objects with right hand – Able to work at farm post-accident – Continued to be remunerated up to end of contract at lower salary rank than pre-morbid upon being released from work – Contingency higher than one employed by actuary for past loss of earnings called for – Defendant liable for 100% of plaintiff’s proven damages – Total loss of earnings award – R3,128,471.40.
Facts and issue: The plaintiff, a major male farm supervisor, was a passenger in a motor vehicle when post the excessively speeding motor vehicle driving into a pothole, he fell off from the bakkie onto the road. The plaintiff was determined to have suffered a right forearm injury as well as left hip soft injury. The matter served in default with the plaintiff praying that the court determine the question of liability, the loss of earnings and the need for the defendant to be ordered regarding an undertaking in respect of the future medical needs of the plaintiff to the extent that those medical needs would be arising from the injuries sustained in the said motor vehicle accident.
Discussion: The occupational therapist also made findings about cognitive deficiencies which he found to be caused by the accident. Not only is this court in serious doubt about how there could be a link between the supra stated injuries with any cognitive sequelae, but this court is not aware of how the occupational therapist, being neither a clinical psychologist nor a psychiatrist, qualified to make such a determination. Those findings have not impacted on or in any way influenced the industrial psychologist’s determinations and the actuaries. Nothing in the industrial psychologist’s report suggests in the least that the opinion therein was premised on cognitive deficiencies.
Findings: Given the fact that post the accident the plaintiff was able to work at the farm and further that even upon being released from work he continued to be remunerated up to the end of his contract, albeit at a lower salary rank than the pre-morbid one the court finds that a contingency higher than the one employed by the actuary for past loss of earnings was called for. Afterall the uncertainties of employment life on a contract seen through the lense of the high unemployment rate in the country suggests that it probably could have been worse for the plaintiff even if he had not been involved in the accident.
Order: The defendant is liable for 100% of the plaintiff’s proven damages. The defendant shall pay the plaintiff a total sum of R3,128,471.40 in respect of the total loss of earnings suffered by the plaintiff.
27 August 2024
LOUBSER J
RAF – Claim process – Substantial compliance – Pedestrian hit by car – Special plea alleging plaintiff failed to lodge substantially compliant claim – Prescribed requirements concerning completeness of form are directory – Substantial compliance with such requirements suffices – Documentation accompanying form was adequate to fulfil needs of an enquiry into merits of plaintiff’s claim – Special plea dismissed – Road Accident Fund Act 56 of 1996, s 24(4)(a).
Facts and issue: In this action against the Road Accident Fund, it is alleged in the summons that the plaintiff sustained serious injuries when he was hit by a motor vehicle while walking on the side of the road. It is further alleged that it was caused by the sole negligence of the insured driver. The defendant alleged in its special plea that the plaintiff has failed to lodge a substantially compliant claim in terms of section 24 of the Road Accident Fund Act 56 of 1996.
Discussion: Reference is made in the special plea to section 24(1)(a) of the Act, which provides that a claim for compensation and accompanying medical report under section17(1) shall be set out in the prescribed form, which shall be completed in all its particulars. The plaintiff lodged his claim for compensation with the defendant by means of the prescribed form RAF1. This claim was accompanied by a copy of the plaintiff's identification document, a consent form, a special power of attorney, a section 19 affidavit, medical records, a hospital record and an accident report. The requirements relating to the submission of the claim form is peremptory, while the prescribed requirements concerning the completeness of the form are directory, meaning that substantial compliance with such requirements suffices. The test for substantial compliance is an objective one.
Findings: The documentation accompanying the RAF1 form was adequate to fulfil the needs of an enquiry into the merits of the plaintiff’s claim, so that it could consider its approach to the pending litigation before costs are incurred. The medical and hospital records, the section 19 affidavit and the accident report submitted together with the RAF1 form, constituted sufficient information for the assessment of the plaintiff’s claim on the merits thereof.
Order: The defendant’s special plea is dismissed.
* See Road Accident Fund v Busuku [2020] ZASCA 158.
** See also Pretorius v Road Accident Fund [2019] ZAGPJHC 293.
27 August 2024
STRIJDOM J
RAF – Past medical expenses – Paid by COIDA insurer – Subrogated claim – Insurer seeking to recover compensation it paid to plaintiff – Insurance companies have been acting on basis that they have to litigate in name of insured – Wrong to abolish such practice by judicial fiat – Insurer is entitled to claim payment of compensation it paid to plaintiff in terms of policy by virtue of doctrine of subrogation – Compensation for Occupational Injuries and Diseases Act 130 of 1993.
Facts and issue: The plaintiff’s claim is for past hospital and medical expenses in the sum of R202,747.40 interest and costs. The plaintiff received payment of the sum of R202,474.40 from the Rand Mutual Assurance Company Limited (RMA) under and in terms of a Commuting Journey Policy. RMA is an insurer that ensures employers against their liabilities to employees under the Compensation for Occupational Injuries and Diseases Act, 130 of 1993 (COIDA). The plaintiff was an employee of an employer insured by RMA. Because of the insurance policy, RMA compensated the plaintiff for the past hospital and medical expenses. As such, RMA is now seeking to recover the compensation it paid to the plaintiff.
Discussion: The defendant raised a special plea stating that past medical expenses was adjudicated and duly settled under statutory CJP Policy/Statutory EMP/COIDA and/or other. It was further submitted by the defendant that the plaintiff passed away and therefore must be substituted with the executor of the estate as a deceased does not have locus standi to litigate. It was also argued that Rand Mutual Assurance does not have locus standi as Rand Mutual Assurance is not a party to the Summons. The defendant concluded that any claims under the Commuting Journey Policy are not recoverable from the defendant since the policy is intended to cover the accident which occurs while the employee is journeying to and from work at the beginning or at the end of a work shift and these claims should be repudiated. The current claim is a subrogated claim. It is safe to assume if regard is had to the prevailing practice that insurance companies have been acting on the basis that they have to litigate in the name of the insured. Although this practice is not desirable, it would be wrong to abolish it by judicial fiat.
Findings: The RMA is entitled to claim payment of the compensation it paid to the plaintiff in terms of the Community Journey Policy in the plaintiff’s name by virtue of the doctrine of subrogation. The amount awarded to the plaintiff for past hospital and medical expenses must be paid to RMA as undertaken by the plaintiff.
Order: The second point in limine is dismissed.
30 August 2024
MASIKE AJ
RAF – Liability – Right turn – Minibus travelling at high speed – Indicated its intention to turn right – Instead drove straight through intersection colliding with plaintiff’s vehicle – Minibus had right of way – Plaintiff in terms of rules of road was expected to give minibus right of way – Collision occurred because plaintiff executed right turn on face of oncoming traffic when it was not safe to do so – Negligence attributed to driving of plaintiff – Claim dismissed.
Facts and issue: At a robot control intersection, a motor vehicular collision occurred between a motor vehicle driven there and then by the plaintiff and motor vehicle, a quantum minibus, driven by the insured driver. The plaintiff allegedly suffered bodily injuries and resultantly instituted action against the defendant. Separation of issues was granted and the court deals with the liability aspect of the plaintiff’s claim.
Discussion: On the issue of the minibus approaching the intersection at a high speed from the opposite direction of the motor vehicle of the plaintiff and indicating to the right, two issues arise. A reasonable person would expect the motor vehicle coming from the opposite direction indicating its intention to turn to the right, to reduce its speed as it approaches the intersection, from the evidence of the plaintiff, this was not the case, the minibus did not reduce its speed as it was approaching the intersection. As the holder of a driver’s license, the plaintiff would be aware that in terms of the rules of the road, at a control intersection the vehicle intending to turn to the right, shall yield the right of way to all vehicular traffic approaching from his or her right within such junction.
Findings: The minibus accordingly had the right of way, and the plaintiff should have waited for the quantum minibus to enter the roadway as it had been indicating its intention to turn right. It is a none issue that the minibus did not turn right and drove straight, the plaintiff in terms of the rules of the road was expected to give the quantum minibus the right of way. On the plaintiff’s own version, she had driven her motor vehicle negligently in executing the right turn in the face of oncoming traffic when it was not safe to do so. The collision occurred because of the plaintiff executing the right turn on the face of oncoming traffic when it was not safe to do so. The collision occurred as a result of the negligent driving of the plaintiff.
Order: The plaintiff’s claim is dismissed.
13 August 2024
MOOKI J
RAF – Liability – Object through windscreen – Injured whilst passenger in taxi – Object fell off another vehicle – Expert opinion that taxi driver would not have seen object when object was airborne – Driver not shown to have been negligent – Law does not require driver to have been hypervigilant – Evidence is unscientific – Not possible to model behaviour of a projectile without basic information on properties of such projectile – Plaintiff not shown that driver was negligent.
Facts and issue: The plaintiff was injured whilst a passenger in a taxi. She seeks relief against the Road Accident Fund on the basis that her injury came about from the driving of a motor vehicle. The plaintiff is required to demonstrate that she was injured because of negligence by the insured driver. The object that smashed the windscreen and struck the plaintiff was made of steel. The injury was a fracture of the proximal humerus involving the shoulder joint. The plaintiff was also diagnosed with neurapraxia of the axillary nerve and damage to the axillary vein.
Discussion: The driver (Mr. Skhosana) confirmed the seating arrangement at the time of the incident. He observed that it was safe to be on the road. He was travelling in the direction of Secunda, during the day. There were no cars ahead of him at the time of the incident. He observed a white bakkie travelling from the opposite direction, driving close to the barrier line. The bakkie did not cross the barrier line. He heard a loud explosion as the bakkie drove past him; whereupon a piece of iron penetrated the windscreen of his taxi, striking the plaintiff. He was driving on the middle of the road in his lane of travel at the time. It was submitted that the second scenario applied because Mr. Skhosana did not move to his left when the bakkie “hugged” the barrier line as it drove past Mr. Skhosana’s taxi; that the object would not have penetrated the windscreen had Mr. Skhosana moved to the left. Mr. Skhosana was said to have placed himself in a position of an emergency by not keeping a safe margin of 1.8 metres when the bakkie drove past him.
Neglicence: The court is not persuaded that Mr. Skhosana was shown to have been negligent. He maintained that he was driving in the middle of the lane in his direction of travel. There were no impediments on the road. Mr. Skhosana gave evidence that he made the appropriate observations before he entered the road. There were no cars ahead of him. He drove on the middle of the lane in his direction of travel. The evidence that the driver of the bakkie was “hugging” the barrier line is speculative. The court is not persuaded that Mr. Skhosana should have moved his taxi to the left side of the road when the bakkie from the opposite direction was about to drive past him. The law does not require Mr. Skhosana to have been hypervigilant. He did not place himself in a position of an emergency.
Order: The plaintiff has not shown that the insured driver was negligent in connection with the plaintiff being struck by a steel object.
29 August 2024
AUCAMP AJ
RAF – Liability – Plaintiff’s version – Discrepancies where plaintiff the only witness – Court under no obligation to accept such evidence – Hit and run – Written statement contains a very short description of relevant events – Not clear whether plaintiff stopped and observed prior to having crossed street – Unclear evidence regarding issue of contributory negligence – Vague and contradictory evidence will not pass – Discrepancies resulting in 10% contributory negligence being allocated – R475,594.90 for future loss of earnings.
Facts and issue: The plaintiff was involved in a hit-and-run motor vehicle accident with an unidentified motor vehicle and has instituted a claim for damages against the Road Accident Fund. The plaintiff, a pedestrian at the time, was involved in a collision with a blue Toyota Corolla motor vehicle. As the Toyota Corolla did not stop after the collision, the plaintiff was unable to establish the identity of its owner or driver. The plaintiff was injured in the collision. The only remaining issues for consideration are the issues of liability including a possible apportionment and future loss of earning capacity.
Plaintiff as single witness: The version of events is placed before court by means of the plaintiff’s written statement and by him having testified in open court. No other factual witnesses testified at the hearing. This is relevant to the credibility of the version presented as the various versions contain several discrepancies. The question however is whether the discrepancies are of such nature that the court ought to reject it. The written statement made contains a very short description of the relevant events. It is not clear whether the plaintiff stopped and observed prior to having crossed the street, whether he noticed the Toyota Corolla prior to having crossed the street; whether he noticed the Toyota Corolla prior to the collision, whether the vehicle collided with the plaintiff from the rear or the front. All these issues are relevant to the issue of contributory negligence. As a direct consequence of the referred to discrepancies, a 10% contributory negligence should be placed with the plaintiff.
Loss of income: After his recovery the plaintiff went back to his self-employment as a painter, however, he experienced the prolonged standing, walking and lifting of heavy weights exacerbating the pain experienced in his ankle. The pain decreased his productivity. The pain experienced in his right ankle will limit the plaintiff’s choice of occupation as occupations which require prolonged standing, walking and lifting of heavy weights will aggravate his symptoms. He will not be able to compete fairly for a position in the open labour market. The plaintiff, during the Matheson Bench Test was not able to meet the physical requirements for work that requires sustained standing tolerance. The plaintiff’s work capacity has been negatively affected by the accident.
Award: The defendant is ordered to pay an amount of R475,594.90 to the plaintiff in respect of the plaintiff’s past and future loss of earnings and earning capacity. The defendant is ordered to issue the plaintiff with an undertaking in terms of section 17(4)(a) of the Road Accident Find Act, Act 56 of 1996.
BOOKS / RESEARCH / ARTICLES
Authors: Jean-Francois Begin, Barbara Sanders and Wenyuan Zhou
This study investigates the benefits and drawbacks of pension plan consolidation by quantifying the impact of mergers of heterogeneous plans on different stakeholders in a unique Canadian implementation of defined benefit plans. Using a comprehensive framework that combines a realistic economic scenario generator, a stochastic mortality model that captures differences among subpopulations, a cost model with economies of scale, and a dynamic asset allocation methodology, we evaluate the combined effect of asset- and liability-side changes on three groups of measures: plan-related risk measures assessing profits from an economic capital perspective, consumption-based metrics to understand the impact on members, and contribution risk measures capturing the risk from the employer’s viewpoint. We apply the framework to a hypothetical and empirically relevant merger and find that consolidation is favorable under most circumstances: the positive impacts of better diversification and economies of scale continue to outweigh the negative effects of heterogeneity even when the merging plans have different mortality expectations, different maturity levels, or modest differences in initial funded ratios.
PROFESSIONAL GUIDANCE NOTES
APN 701: Delictual and Other Legal Matters
APN 901: General Actuarial Practice
APN 904: Market conduct and treating customers fairly
Recommended Experience Requirements: Calculations for delictual and other legal matters
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