Desmond Smith, the president elect of the International Actuarial Association (IAA), as well as the newly elected chairman of Sanlam, might have been a professional golfer if his mother, Shelia, had not torn up his application to be the assistant professional at Mowbray Golf Course.
At the time, Smith was 16, in standard eight (grade 10) and playing off a three handicap. And Smith almost never became an actuary. His father, Sam, tore up his application for a bursary to study to be an actuary – he wanted his son to be a nuclear physicist.
If his father had not torn up those application papers, Smith could well have become the chief executive of Old Mutual, because it was an Old Mutual actuary, Tom Murray, who, after a chance meeting at a dinner at his parents’ home, sent Smith the papers to apply for the Old Mutual bursary.
However, after a year at university Smith found that the pure sciences were not for him. He was more interested in applied mathematics, and that was what was in demand for actuarial science. In the process of changing courses Smith made his first link with Sanlam, securing a bursary to study at the University of Stellenbosch.
Smith says that he has never really been a number- crunching actuary who calculates whether or not someone may be seized by a fatal heart attack at the age of 30 or die at the hearth aged 101.
But he does not for a moment regret being an actuary – “it has opened doors for me”. One of those doors is to head the association that represents what many people consider to be the brainiest profession in the world. His election is a recognition of Smith’s skills in the actuarial profession.
The IAA represents professional actuarial associations around the world. Founded in 1895, it exists to encourage the development of a competent and reliable global actuarial profession, ensuring that the public interest is served.
Smith plays down his talents, saying his career has been shaped by being fortunate to be in the right place at the right time – and this is what happened with his nomination as president elect of the IAA. He claims the nomination could have been influenced by South Africa’s hosting of the association's four-yearly international congress this year and that he was chairman of the organising committee.
Smith’s attitude calls to mind the quote of golfer Gary Player, who famously said: “The more I practise, the luckier I get.”
Smith says that early in his life he decided that whatever he did “I will do the very best I can”. His success, and his election to head the IAA and the board of Sanlam, is probably more a result of this attitude than pure fate. Smith adopted this approach when he landed his first big career break: at the age of 27, seven years after he joined Sanlam as an actuarial student in 1968, he was asked to set up the first independent broker channel for Sanlam. Smith did his best, and his best impressed the Sanlam hierarchy, launching a career that saw him become the managing director of Sanlam at the age of 45 in 1993.
Doing his very best is how Smith intends to handle his job at the IAA.
However, Smith would not have been elected without the ability that his seniors at Sanlam spotted in him back in 1975, when they entrusted him with a job, which, he says, was “way above my level”.
Smith’s appointment comes at a critical time for the actuarial profession, because it has had to take the blame, in part, for the international credit crunch that followed the United States subprime fiasco and which led to the global recession.
Actuaries have been accused of assisting in the construction of high-risk mortgage securitisation investment products and their derivatives, as well as failing to blow the whistle timeously and loudly on what was happening.
The role of actuaries was highlighted by American Insurance Group (AIG), the world’s biggest insurance company, which provided insurance against the failure of the securitisations. AIG was crippled when investors came knocking on its door for losses they had suffered in the credit meltdown, forcing the US government to bail it out.
AIG had been taking on risks with which it should never have been involved, Smith says.
There is some justification in the criticism that his profession did not blow the whistle on what was happening, Smith says.
Although the horse might already have bolted, a new qualification of risk management is being introduced for actuaries, he says. South Africa is one of 20 countries that is helping to develop the qualification.
Smith intends to make the development of the actuarial profession in Africa one of his goals during his tenure as head of the IAA. He says this is vital, because no modern economy can develop without the skills that actuaries bring with them.
Smith’s career history, however, has not entirely been about hitting the golf ball straight down the fairway since he matriculated from Indwe High School (in the then Transkei). Five years into his stewardship as managing director of Sanlam, Smith seemed to have hit the ball straight into an inescapable bunker when Sanlam announced that he was “retiring” at the age of 50.
Back then no one wanted to speak about what caused his “retirement”, and Smith is still loath to discuss the issue.
At the time of his “retirement” at the end of 1997, Smith was putting the final touches to the restructuring of Sanlam, dragging it into being a truly South African company instead of one that was perceived as being singularly Afrikaans and having supported the all-white Afrikaner nationalist government. Smith says this perception had long been proved to be untrue, considering that senior Sanlam executives, such as Andreas Wassenaar, a former managing director and chairman, repeatedly clashed with the National Party (NP) government, particularly with Wassenaar’s book The Assault on Free Enterprise: the Freeway to Communism, which was a critique of the NP’s economic and racial policies.
When Smith gave evidence to the Truth and Reconciliation Commission (TRC) in November 1997, he said that interaction with the NP government at top level was logical for Sanlam, which had its origins within the Afrikaner community, whose major political philosophy revolved around separate development. Sanlam's first priority as a business venture was to protect its policyholders. The management at the time was bent on protecting those interests, hence its interaction with the NP government.
He was quoted by news agency Sapa as telling the commission: “This approach turned out to be totally wrong and undoubtedly tended to influence, reassure and even lull earlier management into a sense of submission to the initiatives (of) politicians to establish institutionalised apartheid.”
He denied that interaction with the NP government was in return for a preferential business status.
“Almost all the other companies had a similar relationship with the government. We managed to be where we are now because of the range of the products we offered and our aggressive marketing strategy,” Smith told the TRC.
Like many other companies that operated during apartheid, Sanlam was forced to moderate its criticism of the government because the government was its biggest customer.
Smith says now the irony is that both the African National Congress and the South African Communist Party have entrusted the retirement savings of their members to the care of Sanlam.
“That is the business of business: to make yourself acceptable in broad context.”
It has often been rumoured that Smith’s “early retirement” from Sanlam was because he was opposed to the demutualisation of Sanlam. But that, he says, was most definitely not the case.
When he took over as managing director, Sanlam was in a watershed period, Smith says. It was still a mutual company owned by its policyholders.
Smith says that mutual companies often focus on the wrong things. The focus at Sanlam was purely on generating premiums (new business). The time had come to change the business model to one of offering broad financial services.
As a consequence, under his directorship, the company went through an 18-month period of self-examination from 1994.
“It was clear to me that demutualisation was on the cards. Demutualisation would focus the company on the right things. It adds a set of stakeholders who are far more discerning and critical; it adds extra accountability and gets the right focus on the way in which business should be done.”
As a mutual, Sanlam was precluded from raising capital from the share market, and the time would come when it would require additional capital to finance expansion.
But, he says, demutualisation was not something that could happen overnight. The company had to be restructured financially, and many people, including board members, staff and policyholders, had to be convinced that it was the correct thing to do.
Smith was not to be part of the process when Sanlam demutualised in October 1998, with the company splitting into seven autonomous parts falling under the umbrella of the listed company. Sanlam Limited listed on the JSE on November 1, 1998 at a price of R6 a share. On September 10 this year, Sanlam was trading at R24.
Smith says it was very important that policyholder interests were protected in the demutualisation process. He believes this has been achieved. Even now there is still a “policyholder interests committee” of the Sanlam board.
At the time of his “retirement” Smith indicated in an interview with the Sunday Times that he was leaving because of “differences of emphasis”, rather than any disagreement with Sanlam’s strategic direction.
The late Marinus Daling, who had taken over as executive chairman of Sanlam at the time of Smith’s “retirement”, was quoted in the article as saying that the subject of Smith’s departure was “sensitive”.
However, Daling asked Smith to stay on as a non-executive director of Sanlam's short-term insurance subsidiary, Santam. Daling said he would not have done this if there had been something fundamentally wrong with Smith. “We did not part ways fighting with each other. It was amicable and in the interests of everyone,” Daling said.
Quite clearly, the insurance industry also saw nothing wrong with Smith. Two years later, he signed up as managing director of the Reinsurance Group of America (South Africa) when the company opened the doors of a local subsidiary.
In 2004 Smith was elected to his second term as chairman of the powerful Life Offices’ Association of South Africa; he was elected to a third term in 2008.
The trust that is placed in Smith by his peers has enabled him to meet his own standards.
Smith firmly believes in the maxim of 16th-century English philosopher, statesman and writer Francis Bacon, who wrote: “I hold every man a debtor to his profession; from the which as men of course do seek to receive countenance and profit, so ought they of duty to endeavour themselves, by way of amends, to be a help and ornament thereunto.” Or as Smith puts it: “Anyone who is privileged and has the good fortune to have a sound education has a debt to society and his or her profession.”
He serves on the Financial Services Board (FSB) advisory committee on long-term insurance and the council of the Ombudsman for Long-term Insurance. Smith is a past president of the Pensions Institute of Southern Africa and of the Actuarial Society of South Africa. Apart from being president elect of the IAA, he also serves on various of its committees, as well as committees of the Actuarial Society of South Africa.
He takes an active interest in his alma mater, the University of Stellenbosch, where he served as chairman of the university council for six years. He serves on the advisory board of the university’s Graduate School of Business and is the chairman of the Stellenbosch Institute for Advanced Studies.
He has been a director of numerous companies, from which he has resigned since his appointment to the board of Sanlam.
Smith never really left the broader Sanlam family, having been asked to stay on as a non-executive director of Santam. In 2003, Smith was elected chairman of Santam – a position he held until he was elected chairman of Sanlam.
The Sanlam that Smith now heads as chairman is a very different company from the one he left as managing director 11 years previously.
It has undergone a far more successful demutualisation than its main opposition, Old Mutual, a few kilometres away as the crow flies, in Pinelands.
Sanlam has purposely kept its strong South African presence, unlike Old Mutual, which is now a British-based company, mired in what many business commentators consider to be inappropriate investments.
The Sanlam board of directors represents a cross-section of South African civil society. This is unlike Old Mutual, which has a board that includes lords of the realm of the United Kingdom.
The perception that Sanlam is a white Afrikaner organisation is fading fast. Not only is its board transformed but so is its staff and, most importantly, its clientele, which, interestingly, includes the retirement funds of organisations that were banned during apartheid.
Smith says decisions are taken at Sanlam for business reasons and are not based on emotion, and everyone at Sanlam now accepts that the company must reflect the demographics of the country.
In 1993 Sanlam managed R83 billion; it now has assets under management of more than R440 billion. In 1993, Smith says, the first signs of what was to become a strong wave of consumerism were emerging. This has provided ongoing challenges for the financial services industry and Sanlam.
Back in 1993 the life assurance industry was not sufficiently transparent and this needed to change.
Smith says that treating customers fairly is not only a business imperative but is also the right thing to do. He says the thing he does not like about the broader financial services industry is the way in which some participants exploit the ignorance of consumers. “This abuse of ignorance gets to me.”
He says that the situation is particularly shocking in the credit life assurance business, where consumers are paying out enormous amounts for expensive insurance to pay off outstanding debt in the event of death or disability. Smith says that in many instances only some 10 cents of every rand paid as premiums is eventually paid out in benefits.
He says his eyes were opened when he served as a member of an industry inquiry into credit life assurance, headed by retired Supreme Court of Appeal judge and former Ombudsman for Long-term Insurance Peet Nienaber.
The inquiry was sparked by a Personal Finance exposé that life assurance company Regent Life, a subsidiary of listed company Imperial, had ignored the commission payment regulations that govern credit life assurance policies. The abuse cost individual policyholders thousands of rands each.
Although the FSB is moving to shut down the abuses in credit life assurance, Smith says that the National Credit Regular also has a significant role to play in stopping abuses, because credit life assurance is normally embedded in loan contracts.
Smith says the industry has a good relationship with its main regulator, the FSB, which is to the benefit of consumers.
He says the FSB is taking various measures, with the support of the industry, to provide better protection for consumers.
The initiative to introduce a different approach to regulation, through what is called Treat Customers Fairly (TCF), is “highly commendable”, Smith says. TCF is a joint venture between the FSB and the financial services industry.
The approach will replace the current situation where the industry is regulated via a rigid set of rules – and those who want to exploit consumers attempt to find loopholes in the rules. TCF, on the other hand, is based on the principles of fair treatment.
He believes that one thing that is inhibiting greater protection for consumers is the Competition Act. “Everyone is petrified of the Competition Act. The Act makes it difficult for the industry to reach agreements, even where an agreement is in the best interests of consumers.”
Smith says it is obvious that scandals in the financial services industry contribute to consumers' reluctance to use financial products. This, he warns, is not good for consumers. Recent surveys show that consumers have huge gaps in their financial planning, from failing to save enough for retirement to not having sufficient insurance against the unexpected.
He says that sound corporate governance is essential for the fair treatment of consumers. Smith sees the development of the excellent corporate governance at Sanlam as a primary aim of his chairmanship of the company.
He says corporate governance is no longer restricted to the internal workings of a company - a company must now also consider its broader role in society and even its contribution to protecting the environment. “There is a far greater responsibility to conduct business in the interests of society.”
Being true to himself Smith says there is not much he would have done differently in his life. “Everyone makes mistakes and we grow through mistakes.
“On a more personal level, I regret I was very much an absent father and husband, tied up in work, with very little balance in my life. I missed a lot of my son and daughter growing up. Of course I regret it, but I have now spent a lot more time since 1997 establishing sound relationships with my children.”
He says his wife of 38 years, Estelle, has taught him a great deal, particularly to be “true to himself”.
“She always says you cannot be anyone but yourself, and try to be the best you can at that. And don't compromise your values.”
Golf has been one of Smith's lifetime passions. He started playing at the age of five and has played at many of the world’s top golf courses.
He rates Kingsbarns Golf Links, about 10 kilometres south of the Mecca of golf, St Andrews, with the ridges and hollows of its exposed fairways following a rugged coastline that faces the North Sea, as his favourite course. “It is just sensational.”
Smith, who plays off a nine handicap, has hit only one hole-in-one - and it happened in the Western Cape holiday town of Hermanus, 50 years to the day on which he first swung a club on a golf course.
It was high season on January 4, “when every man and his dog was on the course, so it was quite an expensive round of drinks”. But, being an insurance man, Smith was insured against the rare event – by Santam, of course.
* This article was first published in the 4th quarter 2010 edition of Personal Finance magazine.