Old Mutual Life Assurance Company (South Africa) Limited v Pension Funds Adjudicator and Others (7492/06) [2006] ZAWCHC 47; [2007] 2 All SA 98 (C); 2007 (3) SA 458 (C) (26 October 2006)

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[2006] ZAWCHC 47
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Old Mutual Life Assurance Company (South Africa) Limited v Pension Funds Adjudicator and Others (7492/06) [2006] ZAWCHC 47; [2007] 2 All SA 98 (C); 2007 (3) SA 458 (C) (26 October 2006)

IN THE HIGH COURT OF SOUTH AFRICA
[CAPE OF GOOD HOPE PROVINCIAL
DIVISION]
REPORTABLE
CASE NO: 7492/2006
In the matter between:
OLD MUTUAL LIFE ASSURANCE COMPANY
(SOUTH AFRICA) LIMITED
Applicant
and
THE PENSION FUNDS
ADJUDICATOR First Respondent
BELINDA MARIÉ HOLLOWAY Second
Respondent
THE REGISTRAR OF PENSION
FUNDS Third Respondent
THE SOUTH AFRICAN RETIREMENT
ANNUITY FUND Fourth Respondent
THE REGISTRAR OF LONG-TERM
INSURANCE Fifth Respondent
JUDGMENT DELIVERED ON THURSDAY 26
OCTOBER 2006
FOURIE, J:
INTRODUCTION
[1] Applicant, a registered long-term
insurer as defined in the Long-Term Insurance Act No. 52 of 1998
(“the LTIA”), applied in
terms of section 30P of the Pension
Funds Act No. 24 of 1956 (“the PFA”), for the setting aside of a
determination of first respondent
made in terms of section 30M of the
PFA.
[2] The application was unopposed, but
first, third and fifth respondents filed affidavits with the aim of
bringing certain aspects
to the court’s attention, which they
considered could be of assistance to the court in the adjudication of
the matter.
[3] At the hearing of the application
on 31 August 2006, Adv Oosthuizen SC appeared on behalf of applicant,
while Adv Golden represented
first respondent, but announced that she
only had a watching brief as first respondent did not oppose the
application. At the conclusion
of argument by Mr Oosthuizen on 31
August 2006, I postponed the matter
sine die
, to allow
applicant time to place additional information before me. This the
applicant did on 11 September 2006. However, on
the same day, I was
informed that first respondent had on 7 September 2006 filed a notice
of intention to oppose the application,
which was followed on 8
September 2006 by applicant’s notice of intention to apply in terms
of Rule 30 (2), for the setting aside
of first respondent’s notice
of intention to defend as an irregular proceeding. I then met with
Mr Oosthuizen and first respondent’s
newly appointed leading
counsel, Adv Ntsebeza SC, assisted by Ms Golden, and it was decided
to abridge the rules of court and to
allow first respondent to bring
an application on 13 October 2006, for condonation and leave to
oppose the main application launched
by applicant. To this end, a
time-table was agreed upon for the filing of affidavits by first
respondent and applicant.
[4] On 13 October 2006, I heard first
respondent’s application and thereafter made the following order,
indicating that my reasons
therefor would be furnished in the
judgment in the main application:
“
(a) First respondent’s
application for condonation and leave to oppose the main application,
is refused.
(b) Each party is to pay its own
costs.”
I thereupon reserved judgment in the
main application.
REASONS FOR THE ORDER MADE ON 13
OCTOBER 2006
[5] First respondent is the statutory
adjudicator appointed in terms of section 30C of the PFA, to
discharge the various duties set
out in sections 30B to 30O, and
section 30Q, of the PFA. As set out more fully hereunder, first
respondent was required to adjudicate
upon a complaint lodged with
him by second respondent in terms of section 30A of the PFA. This he
did and handed down a written determination
in terms of section 30M
of the PFA.
[6] Section 30P (1) of the PFA,
provides that any party who feels aggrieved by a determination of
first respondent, may apply for
relief to the division of the High
Court which has jurisdiction. Sub-section (2) provides that the High
Court:
“
shall have the power to consider
the merits of the complaint in question, to take evidence and to make
any order it deems fit.”
[7] As was said in
Meyer v Iscor
Pension Fund
2003 (2) SA 715
(SCA) at 725I-726A, the present
application is in the nature of a
sui generis
appeal, which
Brand JA described as follows:
“
From the wording of section
30P(2) it is clear that the appeal to the High Court contemplated is
an appeal in the wide sense. The
High Court is therefore not
limited to a decision whether the Adjudicator’s determination was
right or wrong. Neither is it confined
to the evidence of the
grounds upon which the Adjudicator’s determination was based. The
court can consider the matter afresh
and make any order it deems fit.
At the same time, however, the High Court’s jurisdiction is
limited by section 30P(2) to a consideration
of ‘the merits of the
complaint in question’. The dispute submitted to the High Court
for adjudication must, therefore, still
be a ‘complaint’ as
defined. Moreover, it must be substantially the same ‘complaint’
as the one determined by the adjudicator.”
[8] In the first affidavit which first
respondent filed, he accepted that as he performs a judicial function
in terms of the PFA,
he “cannot properly file opposing papers” to
defend his determination. As mentioned previously, first
respondent’s declared
intention in filing his first affidavit was
merely to bring certain aspects to the court’s attention which he
considered could
be of assistance in deciding the matter. In this
first affidavit he referred to decisions confirming that it would be
improper for
him to appear in this application to defend his own
determination. In particular, reference can be made to the decision
by Nel,
J in
Orion Money Purchase Pension Fund (SA) v Pension
Funds Adjudicator and Others
[2002] 9 BPLR 3830 (C) and the
decision of the Supreme Court of Appeal in
Pretoria Portland
Cement Company Ltd and Another v Competition Commission and Others
2003 (2) SA 385.
[9] In the
Pretoria Portland
Cement
-case, it was emphasized that there are good reasons of
policy why judges should not be joined as parties in appeal
proceedings against
their judgments. It was held that it would be
improper for judges to participate in any stage subsequent to their
judgments in
order to defend their decisions, except in those rare
cases where an obligation to provide information to the court of
appeal arises.
It was stressed by the Supreme Court of Appeal that
it is not in the public interest that judges should become embroiled
in disputes
between parties who have appeared before them, as judges
should be seen as impartial. In the
Orion
-case, Nel J frowned
upon the conduct of first respondent in filing opposing papers in an
application seeking to set aside his determination.
The court
stated that first respondent’s function is to dispose of complaints
lodged in terms of the PFA and after making his
determination he has
no further function to fulfil. I am in full agreement with the
sentiments expressed by Nel, J, save that it
should be emphasized
that there may be rare cases where first respondent may be required
to file an affidavit in proceedings under
section 30P of the PFA, to
provide information which may assist the court in its adjudication of
the matter.
[10] In the second affidavit filed by
first respondent in support of his application for leave to oppose
the main application, first
respondent says that he was subsequently
advised by his legal representatives that his initial view that he
has no standing in a
section 30P-application, was correct only to the
extent that the parties seek recourse from him to reconsider his own
determination.
He was advised that under any other circumstances,
as a
quasi
judicial functionary, he was not precluded from
opposing an application brought to the High Court for the setting
aside of his determination.
He added that the advice obtained was
to the effect that the judgment in the
Orion
-case is clearly
wrong.
[11] The submissions advanced by Mr
Ntsebeza on behalf of first respondent in seeking leave to oppose the
main application, may conveniently
be summarised as follows:
As first respondent does not perform
a judicial function in terms of the PFA, but merely a
quasi
judicial function, he is not in the position of a judge seeking to
“defend inappropriately” his own judgment. Consequently
the
dictum
in the
Pretoria Portland Cement
-case is
distinguishable.
On a proper construction of the
provisions of the various sub-sections of section 30 of the PFA,
first respondent is afforded the
right to oppose the relief sought
by applicant.
First respondent has a constitutional
right, by virtue of the provisions of sections 34 and 38 of the
Constitution, to participate
in these proceedings. Alternatively,
if he is not entitled to invoke the said provisions of the
Constitution, the court should
in terms of section 39 of the
Constitution, develop the common law by affording first respondent
the right to oppose the main application.
[12] The first enquiry is whether the
function performed by first respondent in adjudicating upon a
complaint in terms of the PFA,
is a judicial function. If so, it is
clear on the authority of the
Pretoria Portland Cement
-case
that it would be improper for first respondent to appear in the main
application to defend his determination. I am in agreement
with Mr.
Oosthuizen who submitted, with reference to section 34 of the
Constitution, that a judicial function is performed by a functionary
who resolves a dispute by the application of law in a fair public
hearing in a court or other independent and impartial forum.
First
respondent was required to resolve the dispute between applicant and
second respondent in an independent and impartial manner
and it is
clear from his determination that he resolved same by the application
of law. I am accordingly satisfied that he performed
a judicial
function proper and not merely a
quasi
judicial function (the
meaning of which is in any event not clear – see
Administrator,
Transvaal and Others v Traub and Others,
[1989] ZASCA 90
;
1989 (4) SA 731
(A) at
763F.) The conclusion that first respondent performed a judicial
function, is in my view confirmed by section 30 O of the
PFA, which
provides that first respondent’s determination shall be deemed to
be a civil judgment of any court of law, on the strength
of which a
warrant of execution may be issued.
[13] I am further of the view that on
a proper construction of the various provisions of section 30 of the
PFA, it is clear that the
legislature did not intend to afford first
respondent the right to become a party to a section 30 P application
and to oppose same.
If that was the intention of the legislature, I
would have expected a clear indication thereof in section 30 of the
PFA. On the
contrary, the section clearly shows that first
respondent is not a party to the complaint as defined in section 30
G, nor is he in
terms of section 30 P(1) entitled to receive notice
of an aggrieved party’s intention to approach the High Court.
[14] In my view first respondent’s
reliance on the provisions of sections 34 and 38 of the Constitution,
is misplaced. Section
34 affords the right to a party to have a
dispute resolved. First respondent is not a party to the dispute
between applicant and
second respondent and is, in my opinion, not
entitled to invoke the right enshrined in section 34 of the
Constitution, to appear
in the main application to defend his
determination. Section 38 of the Constitution, which first
respondent says, allows him to
oppose the application in the public
interest, only applies in the case of infringements, or threats of
infringement, to the rights
enumerated in chapter 2 of the
Constitution. It provides that anyone listed in section 38 (which
includes anyone acting in the public
interest) has the right to
approach a competent court, alleging that a right in the Bill of
Rights has been infringed or threatened,
to seek appropriate relief.
Nowhere in the affidavits of first respondent is it alleged that
there has been an infringement of such
a right or a threat of
infringement, entitling first respondent to approach a court for
relief. There is accordingly no basis upon
which first respondent
can rely upon section 38 of the Constitution to oppose the main
application.
[15] As Mr Ntsebeza correctly pointed
out, our courts have since
Patz v Green
1907 TS 427
,
consistently refused to acknowledge that there is a common law right
in terms of which anyone is entitled to act in the public interest.

He accordingly urged me to develop the common law in terms of section
39 of the Constitution, by affording first respondent the
right to
appear in the main application in the public interest. The
difficulty that I have with this submission is that there is
no need
to develop the common law in a case where the Constitution already
provides the necessary remedy. As I have mentioned,
section 38 of
the Constitution allows anyone acting in the public interest, to
approach a competent court for relief, alleging that
a right in the
Bill of Rights has been infringed or threatened. There is
accordingly no need to develop the common law in this
instance.
[16] I accordingly concluded that
first respondent has no standing in the main application. In fact,
it would, in my view, have been
highly improper to allow him to enter
the fray in the main application as a party, as it is not in the
public interest that he should
become embroiled in the dispute
between applicant and second respondent after he had already issued a
determination in the same dispute.
In the words of the Supreme
Court of Appeal in the
Pretoria Portland Cement
-case, it is
a matter of the utmost importance that he should be seen as impartial
and, in the kinder sense, aloof. I am accordingly
not persuaded
that the judgment in the
Orion
-case is clearly wrong; on the
contrary, subject to the
caveat
added in paragraph 9 above, I
am in full agreement with the reasoning of Nel, J in regard to first
respondent’s lack of standing.
[17] First respondent also pointed to
the fact that he has been cited as a respondent in the main
application. However, his citing
as a respondent does not make him
a party to the underlying dispute between applicant and second
respondent. This is so as first
respondent has no interest in the
right which is the subject matter of the dispute between applicant
and second respondent. Second
respondent, who obviously has an
interest in the outcome of her dispute with applicant, has not
opposed the application. First
respondent suggested that as
financial constraints precluded her from appearing in this court, he
should be allowed to take up the
cudgels on her behalf. It may well
be necessary for the legislature to consider measures to assist
policy holders in opposing section
30 P applications, but, in my
opinion, this should be achieved by means other than allowing first
respondent the right of appearance
as a party or to act on behalf of
policy holders.
[18] In view of my finding that first
respondent does not have the necessary standing to oppose the main
application, it is not necessary
for me to dwell on the other factors
to be taken into account by a court considering an application for
condonation.
[19] In regard to costs, I was not
persuaded by the submission on behalf of applicant that a punitive
costs order should be made against
first respondent. He is a public
functionary whose office is funded by public funds and a court should
only in exceptional circumstances
consider it necessary to mulct
first respondent in costs. In addition, first respondent says that
although he initially was of
the view that he did not have the
necessary
locus standi
to oppose the application, he was
subsequently convinced by his legal representatives that this view
was wrong. This caused him
to bring the application to intervene.
In the circumstances I was not inclined to grant any order for costs
against first respondent.
[20] It is for the above reasons that
I refused first applicant’s application and ordered each party to
pay its own costs.
BACKGROUND TO THE MAIN
APPLICATION
[21] Fourth respondent is a retirement
annuity fund which operates exclusively by means of individual
policies issued to it by applicant
in respect of each of fourth
respondent’s members, as contemplated in Regulation 28 (3) of the
PFA.
During 1983, second respondent became a member of fourth
respondent and applicant consequently issued a retirement annuity
policy
to fourth respondent, in respect of second respondent, being
policy no. 4256627 (“the policy”). The resultant contract of
insurance
was accordingly concluded between applicant and fourth
respondent, with second respondent being the life assured.
[22] In terms of this contract the
policy benefits due to fourth respondent would become available to
purchase an annuity for second
respondent (and to pay her a cash
amount if she elected to commute part of her pension benefits)
subject to the rules of fourth respondent
and the provisions of the
Income Tax Act, 1962, upon second respondent’s elected “date of
retirement”, which was 1 September
2016 at the inception of the
policy, but was subsequently extended to 1 September 2026. The
policy contract, as amended, provided
for payment of premiums until 1
September 2026. Second respondent, however, ceased payment of
premiums on 1 September 2002. Due
to the cessation of premiums
applicant re-calculated the remaining or paid-up value of the policy,
which resulted in a reduction
of the fund value of the policy by
R4591.52.
[23] Second respondent was
dissatisfied with this reduction and submitted a written complaint
with first respondent in terms of section
30A of the PFA. On
considering the complaint and written submissions of fourth
respondent and applicant, first respondent, on 9
June 2006, handed
down his written determination in terms of section 30M of the PFA, in
terms of which applicant was ordered to:
“…
credit
(second
respondent’s)
investment value in the fund with the amount of
R4591.52, together with interest thereon at 15.5% per annum,
calculated from 1 September
2002 to the date of such crediting”.
[24] The basis for this order was
first respondent’s finding that applicant was not entitled to
reduce second respondent’s “investment
value”. Applicant does
not accept this determination and accordingly seeks the setting aside
thereof under section 30P of the
PFA. It is accordingly necessary
for this court to consider the merits of second respondent’s
complaint which she had lodged with
first respondent and in so doing
also to consider the reasons furnished by first respondent in his
determination for upholding the
complaint and making the order which
he did.
APPLICANT’S CONTENTIONS
[25] Applicant contends that on the
following grounds it is entitled to the relief sought in the notice
of motion:
(a) The complaint pertaining to the
calculation of the paid-up value of the policy, is not a “complaint”
as defined in the PFA,
with the result that first respondent did not
have the necessary jurisdiction to consider second respondent’s
complaint.
(b) In arriving at his
determination, first respondent misconstrued and/or overlooked the
relevant provisions of fourth respondent’s
rules and the policy,
and failed to have regard to the provisions of the LTIA which impose
statutory measures to be applied and invoked
in determining the
paid-up value of the policy.
EVALUATION
[26] In view of my finding hereunder
in regard to the merits of the application, it is not necessary for
me to decide the jurisdictional
issue raised by applicant. It would
suffice to say that it appears to me that second respondent’s
complaint does relate to the
alleged maladministration of a fund as
defined in section 1 of the PFA, which she alleges has caused her
financial prejudice. However,
for purposes of this application I
accept, without deciding, that second respondent’s complaint
constituted a “complaint” as
defined in section 1 of the PFA.
[27] In considering the merits of the
application, it is necessary to firstly have regard to the relevant
rules of fourth respondent
and the provisions of the policy.
Thereafter I will deal with the provisions of the LTIA upon which
applicant relies.
[28] Section 13 of the PFA stipulates
that the rules of a registered fund (such as fourth respondent) shall
be binding on the fund
and its members (such as second respondent).
Rule 3.4(a) of fourth respondent’s rules deals with the
consequences of non-payment
of contributions, in the following terms:
“
On non-payment (in respect of
any one annuity policy issued in respect of a member) of periodic
contributions or instalments thereof
to the fund within the days of
grace allowed by the underwriter, such member shall be deemed to have
discontinued contributions and
shall retain such fully paid-up
reduced benefits under that annuity policy as the underwriter shall
determine.”
For the sake of completeness I should
mention that applicant is the underwriter referred to in the said
rule, it having been appointed
in terms of rule 6.9, to underwrite
the benefits under the fund.
[29] In her written application for
the policy, dated 21 July 1983, second respondent,
inter alia
,
declared as follows:
“
Ek doen hiermee aansoek om
lidmaatskap van die Uittredingannuïteitfonds onderskryf deur Ou
Mutual in die land en munt van toepassing
op hierdie aansoek en ek
stem in om gebind te word deur die reëls van die betrokke Fonds en
die voorwaardes van die kontrak (albei
soos van tyd tot tyd gewysig)
tussen die trustees van die Fonds en Ou Mutual.”
[30] The policy provides for the
payment by applicant of a “basiese voordeel” which the schedule
to the policy fixes at R22374.00
plus certain bonuses. In clause
2(c) of the “Algemene Voorwaardes” of the policy, non-payment of
premiums is dealt with as follows:
“
In die geval van nie-betaling
van premies… word hierdie polis outomaties ʼn opbetaalde
versekering vir ʼn verminderde basiese voordeel.”
It should be noted that while the
policy provides for such “verminderde basiese voordeel” in the
event of non-payment of premiums,
it nowhere specifies the formula
according to which the reduced benefit is to be calculated.
[31] As mentioned previously,
applicant, upon cessation of premiums, re-calculated the remaining or
paid-up value of the policy, which
resulted in a reduction of the
fund value of the policy in an amount of R4591.52. In paragraph 19
of his determination, first respondent
found that –
“
as neither the rules
(of
fourth respondent)
nor the provisions of the policy document
authorise the insurer
(applicant)
to reduce your investment
value, neither the fund nor the insurer may reduce it solely by
reason of your stopping your contributions
to the fund.”
[32] In paragraph 18 of his
determination first respondent explains the
ratio
underlying
his finding, as follows:
“
The rule
(rule 3.4(a) of
fourth respondent’s rules)
provides for the payment of ‘paid
up reduced benefits’ in the case where a member has prematurely
seized to make contributions.
This can only refer to the basic
benefit that will be payable when the member reaches the agreed
retirement age since benefits
are only payable upon retirement, death
or disability. None of these events have occurred in your case, thus
there can be no call
for the insurer to reduce your investment value
to recover unrecouped expenses. Likewise, clause 2(c
) (of the
policy)
refers to a ‘verminderde basiese voordeel’. The same
considerations apply insofar as the provisions of the policy document
are
concerned.”
For the sake of completeness I should
mention that the amount of R4591.52 represents unrecouped up-front
expenses that would otherwise
have been recovered by applicant over
the remaining term of the policy.
[33] In my view the reasoning of first
respondent in paragraph 18 of the determination, is unsound.
Firstly, he states that rule
3.4(a) of fourth respondent’s rules
and clause 2(c) of the policy, provide for “the payment of paid-up
reduced benefits” in
the case where a member prematurely ceases his
or her contributions. Rule 3.4(a) does not provide for “payment”
of paid-up reduced
benefits, but for the retention thereof, while
clause 2(c) stipulates that the policy “outomaties ʼn opbetaalde
versekering vir
ʼn verminderde basiese voordeel (word)”. This
means that as the “basiese voordeel” stipulated in the policy,
is due to the
cessation of premiums no longer payable, applicant as
underwriter has to calculate a paid-up reduced benefit. This
reduced benefit
is to be retained until such time as it becomes
available to purchase an annuity, i.e. on second respondent’s
agreed retirement
date, death or disability.
[34] Secondly, first respondent was of
the view that the paid-up reduced benefit referred to in rule 3.4(a)
and clause 2(c) of the
policy, can only refer to the basic benefit
that will be payable when the member reaches the agreed retirement
age, since benefits
are only payable upon retirement, death or
disability. He accordingly concluded that as “none of these events
have occurred in
your case, there can be no call for the insurer to
reduce your investment value to recover unrecouped expenses.” In
reaching this
conclusion, first respondent overlooked the express
provisions of rule 3.4(a) and clause 2(c) of the policy, which, upon
cessation
of premiums prior to the agreed retirement date, require
the underwriter to calculate a reduced benefit payable in terms of
the policy
when it terminates on retirement, death or disability.
In my view, first respondent erred in regarding the retirement, death
or
disability of second respondent as a pre-condition for a
determination of a reduced paid-up benefit. The conclusion in
paragraph
19 of first respondent’s determination that “as neither
the rules nor the provisions of the policy document authorised the
insurer
to reduce your investment value, neither the fund nor the
insurer may reduce it solely by reason of your stopping your
contributions
to the fund”, is clearly wrong. On the contrary,
applicant was contractually obliged to calculate a paid-up reduced
benefit upon
cessation of her premiums by second respondent.
[35] What remains to be determined is
how this paid-up reduced benefit is to be calculated and whether the
reduction of R4591.52 represented
a reasonable basis for the
determination thereof. The fact that the policy does not specify a
formula according to which the paid-up
reduced benefit is to be
calculated, does not mean that applicant has an unfettered discretion
to arbitrarily determine a value in
a manner that is unfair,
unreasonable or capricious. In this regard, I am in agreement with
applicant’s submission that the provisions
of the LTIA, referred to
hereunder, dictate that the paid-up reduced benefit to which second
respondent is entitled, has to be calculated
in accordance with
generally accepted actuarial principles and practice.
[36] In terms of the policy, applicant
undertakes to provide policy benefits upon and as a result of “life
events” in return for
a premium, with the result that the policy is
a “life policy” as defined in section 1 of the LTIA. It is a
long-term policy
and as such part of the long-term insurance business
of applicant and subject to the provisions of the LTIA. Section 29
of the
LTIA, requires a long-term insurer to maintain its business in
a financially sound condition by,
inter alia
, conducting its
business so as to be in a position to meet its liabilities and
capital adequacy requirement at all times. To this
end, applicant
is obliged to have a statutory actuary who has to perform a number of
important duties under the LTIA.
[37] A key provision of the LTIA aimed
at ensuring that a long-term insurer, such as applicant, remains able
to meet its commitments,
is section 46 which provides as follows:
“A long-term insurer shall not –
(a) enter into any particular kind
of long-term policy unless the statutory actuary is satisfied that
the premiums, benefits and other
values thereof are actuarially
sound;
(b) make a distinction between the
premiums, benefits and other values of different long-term policies
unless the statutory actuary
is satisfied that the distinction is
actuarially justified; or
(c) award a bonus or similar
benefit to a policy-holder unless the statutory actuary is satisfied
that it is actuarially sound and
that a surplus is available for that
purpose.”
[38] Section 52 of the LTIA,
prescribes the manner in which long-term policies, such as the policy
in question, are to be dealt with
in the event of non-payment of
premiums. Essentially, where premiums cease prematurely, it provides
for the calculation of a remaining
value and section 52(3) requires a
long-term insurer to have rules approved by the statutory actuary
prescribing a sound basis on
which, and the methods by which, the
remaining value of the policy is to be calculated. As submitted by
applicant, these actuarially
approved rules will, as with all other
policies, have to adhere,
inter alia,
to the requirements of
section 46. This means that the benefits and values attaching to
such a prematurely terminated policy, and
any distinctions between it
and policies not prematurely terminated, will have to be actuarially
sound.
[39] As appears from the supplementary
affidavits of Messrs F.A. Vergeest and G.S. Palser, respectively an
actuary and the statutory
actuary employed by applicant, actuarially
approved rules are utilised by applicant for the building up of the
actuarial model on
which any long-term insurance product is based.
The actuarial basis of an individual policy sets out the assumptions
that are made
and underpin that policy regarding the risks undertaken
by the insurer, the cost to the insurer of meeting the benefits
covered thereby,
and the costs incurred in setting up and
implementing the policy. To ensure that the premiums, benefits and
other values attached
to the policy are actuarially sound, rules
approved by the statutory actuary are applied to arrive at the
actuarial specifications
and formulae that constitute the actuarial
basis of a policy.
[40] The said actuaries have also
alluded to the substantial expenses incurred by a long-term insurer
in the development, issue, maintenance
and implementation of these
policies. The costs involve,
inter alia
, commission,
administration costs and a number of other expenses. Initial costs
are recovered by the insurer over the term of the
policy by means of
regular expense charges.
[41] In regard to the instant matter,
the actuaries explained how the actuarial basis of the policy was
calculated. They pointed
out that each premium paid under the
policy (after deduction of expense charges and costs of providing
death cover) is utilised to
purchase a number of units in the
policy’s fund. However, when the payment of premiums is
prematurely discontinued, as is the
case in this matter, the policy
becomes paid-up in consequence thereof and it is necessary to
re-value the units represented by the
value of the policy. This is
necessary in order to take account of the fact that the expenses
incurred in regard to the policy,
which would have been recouped over
the unexpired period of the policy, will no longer be recouped over
that period. The policy
value therefore has to make allowance for
such unrecouped expenses.
[42] The actuaries explained the
manner in which the re-valuation of the units represented by the
value of the policy, took place,
and demonstrated that the level of
expenses being recouped (calculated at R33.00 per month) is
consistent with the amounts that would
have been paid had the
premiums continued until maturity. This resulted in the total
deduction of R4591.52 from the policy value,
which is in accordance
with the actuarially approved formulae for the calculation thereof.
Having thus calculated the new value
of the policy units, it was then
possible to calculate the new paid-up sum assured in terms of the
policy, namely R41944.00.
CONCLUSION
[43] In my view applicant has
demonstrated that the calculation of the paid-up reduced benefit, and
in particular the reduction of
the paid-up value of the policy by
R4591.52, took place in accordance with generally accepted actuarial
principles. Put differently,
there is in my view no basis for a
finding that this reduction in value was arrived at in a manner that
is unfair, unreasonable or
capricious. In fact, on the evidence
before this court, applicant has, in my view, shown that in
calculating the paid-up reduced
benefit of the policy, it acted in
accordance with the relevant provisions of fourth respondent’s
rules, the provisions of the
policy and the provisions of the LTIA.
I accordingly find that the evidence does not justify the conclusion
reached by first respondent
in his determination, i.e. that applicant
was not entitled to reduce the fund value of the policy in an amount
of R4591.52.
[44] I should mention that in the
first affidavit filed by first respondent, he,
inter alia
,
says that “nowhere in their response to the complaint did either
the fund (fourth respondent) or the applicant anchor their case
(as
the applicant now does) on the proposition that the deduction was
based on the application of generally accepted actuarial principles.”
He adds that this (whether the deduction was based on the
application of generally accepted actuarial principles) was not the
issue
that he had to decide.
[45] If one has regard to the contents
of the Actuarial Services memorandum placed before first respondent
by applicant in reply to
the complaint, it is clear that applicant
expressly relied upon the proposition that the calculation of the
paid-up reduced benefit
value of the policy was based on the
application of generally accepted actuarial principles. It appears
that first respondent has
overlooked this contention of applicant, in
which first respondent’s attention was specifically directed to
applicant’s actuarial
rules and the relevant provisions of the
LTIA.
[46] I accordingly conclude that
applicant is entitled to have first respondent’s determination set
aside. In paragraph (b) of
the notice of motion, applicant seeks an
order declaring that in the determination of the paid-up value of the
policy, it was competent
for applicant to apply the actuarial rules
required in terms of section 52(3) of the LTIA. I have already
found that applicant
correctly calculated the paid-up reduced benefit
of the policy in accordance with the actuarial rules required by
section 52(3) of
the LTIA and there is, in my view, no need to grant
a declaratory order to this effect. In paragraph (c) of the notice
of motion,
an order is sought declaring that the method of assessing
the paid-up value of the policy did not give rise to a complaint
within
the meaning of that expression in section 1 of the PFA. As I
have not made a finding on this issue, I decline the invitation to
grant a declaratory order of this nature.
[47] In the result the following order
is made:
(a) The orders in paragraphs 25.1 and
25.2 of first respondent’s determination dated 9 June 2006, under
case no. PFA/WE/3896/05/CN,
are set aside and the following
substituted therefor:
“
The complaint relating to the
reduction of the fund value of complainant’s policy no. 4256627, is
dismissed”.
(b) No order as to costs is made.
…………………..
P.B. FOURIE, J