Deloitte Actuarial and Insurance Solutions (AIS) is a specialist insurance and actuarial consulting team, based in South Africa, which operates in more than 40 countries worldwide. Their remit is to provide advanced analytical solutions that enable the financial well-being and solvency of their clients, who include many life and short-term insurers across the African continent, as well as energy and resource companies.
Deloitte AIS had a long-standing client in the energy and resource sector, with significant interest across a number of large mining operations in South Africa. They looked to the Deloitte AIS team to help them plan for necessary environmental rehabilitation requirements such that they would reduce the risk of funding shortfalls – as well as the risk of overfunding and inefficient use of capital – while maintaining regulatory compliance and facilitating proper and responsible environmental care and sustainability.
According to Jaco van der Merwe, Director of Short-Term Insurance for Deloitte AIS, the challenge with formulating these strategies is, “both the financial liabilities and backing assets for the rehabilitation may exhibit volatility and random fluctuations, so it’s important for companies to select financial strategies which minimize the risk of a funding shortfall while avoiding inefficient use of funds.”
Palisade’s @RISK software enabled Deloitte AIS to quickly and efficiently construct the financial models they needed to capture the nature and profile of the risks for both the company’s liabilities and the assets. In the past, the team would construct models manually in Excel. These models took significantly more time and effort and often cost more, as they required extensive error checking. The @RISK software enabled them to quickly build, set-up and populate their models, and provided elegant visualizations of their Monte Carlo simulations which ultimately allowed them to focus on the risks, instead of worrying about the modelling.
“@RISK speeds up and significantly simplifies the stochastic model-building aspects of our work. We can focus more on the strategies and advice and less on model building, debugging and error tracing,” said van der Merwe.
“With @RISK, we were able to construct a projection model which reflected the risk of ‘mis-funding’ throughout the life of the mines and the subsequent rehabilitation periods,” explained van der Merwe.” As a result, we were able to highlight the appropriate funding options and strategies for our client which met their risk appetite and requirements.”
By modelling the risks with Palisade’s @RISK, Deloitte AIS was able to help their client avoid an eventual overfunded position of several billion rands.” In addition, we were able to reduce the amount of contributions required by almost half, simply by applying a sensible investment strategy,” added van der Merwe.