The research projects are judged by the Research Committee of the Actuarial Society of South Africa.

Not only were they rewarded financially, but they were invited to present their research as a paper at the annual Actuarial Convention which took place in Cape Town on 16 and 17 October 2012.

Their paper, which is titled “Dealing in Junk: Money makers or money takers?” was well received by their audience. Although the high-yield market in South Africa is still in its infancy, junk bonds are a potentially viable new asset class for individuals and institutions alike.

They made a study of historical default rates of firms issuing high-yield bonds in the USA.  A multivariate logistic regression analysis was undertaken and resulted in the development of five models which incorporate financial ratios and variables to predict default by such firms. They found that firms with relatively lower total assets, earnings before interest and tax and cash flows from operating activities are more prone to default on their debt obligations. Their research also examined the effect on default rates by macroeconomic factors in conjunction with financial ratios and variables previously used.  The conclusion was that macroeconomic factors are dominant in determining default over the long term.

They also focused on the smaller South African high-yield debt market and its relevance in the context of this study.