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SCOPE OF STUDY
The scope of study of this project extends into both, Life Insurance and General Insurance and the Role of Actuaries in both these fields. It also talks about the role of Appointed Actuaries. It talks about the Portfolio of an Actuary. The study concentrates majorly on Actuarial Science in India but also has certain comparisons with the same abroad in certain areas.
LIMITATIONS
The biggest limitation or drawback that rose during the making of this project was the limited awareness about the topic. Not only the general public but also many Insurance related people are not aware of this subject. Also, there are only around 250 Actuaries in India and contacting them was a major difficulty. The Actuaries refused to fill in any questionnaire as they are not allowed to fill in any Unregistered Questionnaire.
METHODOLOGY
Primary dataPrimary data was collected by way of interaction with a few Actuaries. They refused to fill in any questionnaire as they are not allowed to fill any Unregistered Questionnaire. Secondary dataSecondary data was collected through the internet and referring to Actuarial books.
Actuarial science is the discipline that applies mathematical and statistical methods to assess risk in the insurance and finance industries. Actuaries are professionals who are qualified in this field through education and experience. In many countries, actuaries must demonstrate their competence by passing a series of rigorous professional examinations. Actuarial science includes a number of interrelating subjects,
including probability, mathematics, statistics, finance, economics, financial economics, and computer programming. Historically, actuarial science used deterministic models in the construction of tables and premiums. The science has gone through revolutionary changes during the last 30 years due to the proliferation of high speed computers and the union of stochastic actuarial models with modern financial theory. Many universities have undergraduate and graduate degree programs in actuarial science.
WHO IS AN ACTUARY?
Actuaries are professionals who apply mathematics to financial problems. They evaluate the financial implications of contingent events, in other words, events that are not certain to occur. They are often involved in managing the risks that can arise from undesirable contingent events. Actuaries evaluate the likelihood of future events. They also design ways to reduce the financial impact of undesirable events that do occur. He is a technical expert studying mortality of insuring public, evaluating financial condition of the insurer. An actuary applies analytical, statistical and mathematical skills to financial and business problems, especially those which involve uncertain future events, such as in life insurance, general insurance, risk management, health care financing, investment, corporate finance, banking, pensions and social security. This helps individuals and businesses to safeguard their future, confidently and at a fair price, in an ever-changing world. Actuaries are acknowledged experts in the analysis and modeling of situations involving financial risk and contingent events; concerned with both the asset and liability side of the balance sheet; able to provide realistic solutions to complex problems with a long term forward look; and Practical, innovative and numerate. To do their work, actuaries must have a high level of technical knowledge. For example, they need to understand the nature of insurance, the risks inherent in different types of assets, the ways in which statistical models can be used, and
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the legal and regulatory constraints that apply to the business. Their work often affects many stakeholders, so they must be able to balance different interests and observe high ethical standards in doing so. Although the actuarial profession has existed for many years, it is not a large profession and, therefore, is not well known by members of the general public. In fact, there are many countries in which no actuaries reside. Actuaries have traditionally worked primarily in the insurance and pension industries, and mostly in countries where those industries are well established. In the insurance industry, actuaries can be involved in all types of insurance: life or nonlife; and direct insurance or reinsurance. Although actuaries are often employed by insurers, many are employed by consulting firms and provide services to more than one insurer. Some insurance actuaries work for supervisory authorities, as either employees or consultants. Within these organizations, actuaries can fill a wide range of positions. Many actuaries work in technical roles, applying their skills to tasks such as designing new insurance products, forecasting expected rates of loss, setting premium rates, or calculating the liabilities of an insurer to its policyholders. Others apply their knowledge and experience in management positions, with responsibilities ranging from technical or operational departments, to product line management, to senior executive roles. In India, Insurance Regulatory Development Authority (IRDA) Regulations require that there should be an Actuary for every life and non-life insurance company. An Actuary is a person who has passed a specialized examination conducted by the Actuarial society of India or the Institute of Actuaries, London.
From the fall of Rome, however, it took mathematics and business theory more than 1,000 years to catch up to the point wherein they could be advanced further. Edmund Halley was best known for discovering of the comet that now bears his name. However, he also helped found modern actuarial science. In 1693, Halley made a study of the population in the German town of Breslau. Through careful recording of births, deaths and the aging population, Halley compiled a "mortality table." That bit of mathematics, using probability theories developed just a few decades before, allowed Halley to accurately predict the likelihood of a given person dying in any given year. That, in essence, is the very foundation of the life insurance industry. By the ability to predict life expectancy, Halley was able to determine how much to charge a given person in premiums to cover burial costs.
A generation later, English mathematician James Dodson created an entire framework for the creation of a mutual life insurance company, but died in 1757 -- five years before the Society for Equitable Assurances for Lives and Survivorship was founded in London.
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The term "actuary" was coined in London in 1762 by the Equitable, which first used scientifically calculated premium rates. The Secretary to the Board of the Equitable was given the title Actuary, based on the Latin actuarius, who was the business manager of the Senate in ancient Rome, and kept the daily verbatim record there. In 1775, William Morgan FRS was appointed as the Actuary of the Equitable. Since he was himself an excellent mathematician, he took over the role of premium calculation and financial manager and became the first actuary in the sense we know it today.
Thus, the actuarial profession was formally established in 1848 with the formation of the Institute of actuaries (London). At one point of time it was the only institute it the world to conduct the professional exam. Over the years, actuarial associations were established in several other European countries, in the United States, Australia and Japan. In 1895, the first International Congress of Actuaries was held in Brussels, and the International Actuarial Association (IAA) was formed.
IN INDIA In India, The Institute of Actuaries of India, is the sole professional body of actuaries in India, and was formed in September 1944. It was formed by the conversion of the Actuarial Society of India into a body corporate by virtue of the Actuaries Act, 2006. According to the committee of reforms in insurance sector (1994) at the time of nationalization there were only 67 actuaries in the service of the Life insurance company but their number eventually came down to eleven. Entry of private companies has been allowed by the government since recent past years. Many of these like HDFC Standard, Bajaj Allianz, Prudential, ICICI, ICICI Lombard, Birla Sun Life, IFFCO TOKIO, MAX New York, TATA AIG, AVIVA Life, MET Life, SBI Life, OM Kotak Mahindra, ING Vysya Reliance and Royal Sundaram are very active in the market due to which the demand of actuaries is sure to gain momentum, because an Actuary is the heart of the insurance business.
professionalism, and may require the recommendations of one or more members before an individuals application for membership will be accepted.
Increasingly, actuarial associations require members to undertake continuing professional development as a condition of maintaining their membership. Such requirements are designed to ensure that actuaries are aware of evolving best practices, changes in regulatory requirements, and relevant business developments. In many jurisdictions, full membership in a recognized actuarial association is required to perform certain official tasks, such as determining the technical provisions of an insurer. In some jurisdictions, full membership is a necessary but not a sufficient condition to perform these tasks, with additional specialized qualification requirements being imposed by either the professional association or a regulator. Only if a local actuarial association imposes requirements that cover at least the following topics is it eligible for full membership of the IAA: Financial mathematics Probability and mathematical statistics Economics Accounting Modeling Statistical methods Actuarial mathematics Investment and asset analysis Actuarial risk management Professionalism.
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Skills required 1. One must have a natural problem solving ability. 2. Be able to see the situation from different vantage points. 3. Develop lateral thinking 4. Practical outlook 5. Problem curiosity and business sense with highly developed inter personal Communication Skills 6. An Aptitude for Mathematics 7. Deep Knowledge of Statistics and Commerce. Training institutes in India for Actuarial studies 1. Bishop Herber College, Tiruchrapalli. 2. CMD School of Insurance and Actuarial Science, Uttar Pradesh. 3. Amity School of Insurance and Actuarial Science, Noida. 4. Insurance Institute of India, Mumbai. 5. International Institute for Insurance and Finance, Andhra Pradesh. 6. Institute for integrated learning in Management, New Delhi. 7. Birla Institute of Management Technology, New Delhi 8. RNIS college of Insurance, New Delhi. 9. Jaipuria institute of Management, Lucknow. 10.Institute of Insurance and Risk Management, Hyderabad. There are 17 other colleges in India which provide Graduate courses in Actuarial Science.
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The actuarial control cycle shows that, within the business environment, there are many interrelated factors that affect the ability of an insurer to generate and maintain sufficient capital to ensure that it can meet its obligations to policyholders. The diagram is circular because each element has an effect on the next, and analysis of the results provides necessary input to future developments along the entire cycle. The professionalism of the actuaries involved is an essential ingredient in the successful operation of the cycle.
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Risks
Insurers are subject to many types of risk, not only those against which they insure policyholders, which are called underwriting risks. Other types are credit, market, liquidity, and operational risks. The objectives of an insurer are to understand the nature and extent of the risks to which it is subject and to manage those risks effectively. Actuaries are often involved in the risk assessment process. They identify the specific risks that can affect insurers and consider the relevance of those risks to a particular insurer. They seek to quantify the most relevant risks, and use this information to assess the potential effect of those risks on the insurers financial situation. Actuaries also participate in managing the risks. For example, they may determine how much risk an insurer can afford to retain on each policy, design a reinsurance program to deal with excess amounts of risk, and negotiate the terms of reinsurance contracts with the reinsurers. In recent years, a growing number of companies in a wide range of businesses have appointed chief risk officers and adopted an approach known as enterprise risk management (ERM). In the insurance business, the chief risk officer is often an actuary.
Design
Insurers seek to design products that will meet market needs. For example, individuals might be willing to buy a product that would insure them against the risk of unemployment, but if the insurance covered situations where an individual quit voluntarily, it is unlikely that the risk could be managed by the insurer. Of course, products must also be designed to in a way that they can be
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priced appropriately, from the perspectives of both the insurer and its policyholders. Actuaries often play important roles in the product design process. They assist in identifying market needs, for example, through the analysis of sales patterns, competitors products, and social and demographic trends. They work with others, such as marketing, underwriting, and investment experts, on product design teams. Their work can involve assessing the feasibility of product design features suggested by others, as well as proposing alternatives for consideration. Actuaries are also involved in designing compensation schemes for the intermediaries that will sell the products. The compensation schemes must be attractive to the intermediaries, affordable, and provide incentives to promote the sale of high quality business.
Pricing
If an insurer is to be successful in the long term, its products must be priced adequately to produce profits. At the same time, prices must be competitive with those offered by other insurers and, for some types of products, noninsurance alternatives. Prices must be reasonable from the policyholders perspective, being equitable among various classes of policyholders and bearing a reasonable relationship to the benefits provided by the policy. There are many factors that must be considered when calculating premium rates that can be expected to produce profits. The costs of the benefits provided by the product design must be estimated, including not only basic claims costs but also the potential costs of any guarantees and options provided to policyholders. Expenses must be accounted for, including commissions,
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underwriting costs, other policy administration costs, and overhead costs. The prices must reflect the rates of return that the insurer expects to earn on the investment of premiums, as well as expectations about the willingness of the policyholders to continue paying premiums and maintain their policies in force. To the underlying cost factors mentioned above must be added the need to produce a reasonable profit margin. In many jurisdictions, insurers are required to maintain capital at levels that are related to the risks inherent in the policies they have underwritten. Even in the absence of such requirements, sound business practice dictates that insurers have adequate capital to support the risks they have assumed. Accordingly, the profit margins should be sufficient to provide a return on capital that is acceptable to the insurers shareholders. Further complicating matters, in some jurisdictions there are regulatory constraints on the pricing of insurance products. Actuaries are often heavily involved in the pricing process, particularly for long term life insurance products. They develop assumptions for the various cost factors, taking into account the design of the product, the insurers past experience with similar products, the experience of other insurers, and expectations of future demographic and economic conditions. Actuaries use models to project future cash flows from the product, solving for the premium rates that will produce the desired profit margins. However, rarely does the actuarys job end there. The calculated premium rates might be uncompetitive, at least for some potential policyholders, or outside of the constraints set by regulation. In such cases, the actuary may need to adjust the premium rates, for example, lowering them at some ages and raising them at others, or modify features of the product design. The actuary also needs to test the sensitivity of the profit margin to variations in the cost factors. If
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profitability is too sensitive to certain factors, the product design may need to be changed or an additional premium charged for the risk involved.
Liabilities
Actuaries select appropriate methods for valuing the various types of obligations. They establish assumptions for the parameters that will affect the value of the obligations. Economic, demographic, and business conditions change over time, and information becomes available about the experience of the business that an insurer has underwritten. Therefore, the assumptions used in calculating technical provisions often differ from those used in the pricing process, and may change over time. Actuaries must ensure that the policy and claims data used in the calculations is as complete and accurate as possible. They prepare models that incorporate the methods and assumptions they have selected and apply these models to the data to calculate the technical provisions. Actuaries should also test the sensitivity of technical provisions to changes in the assumptions, to ensure that the provisions will be adequate even if future experience differs somewhat from the assumptions. The results of this testing may show a need to modify the methods or assumptions. Modern international financial reporting standards actually expect the actuary to make adjustments to the liability figures when changes in assumptions appear to be warranted.
Assets
Actuaries may participate in the selection of investment managers who will be responsible for investing some or all of the insurers assets. They can help to establish appropriate targets for performance of the investment managers and
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evaluate actual performance with reference to those targets. Some actuaries work in the investment operations of insurers, selecting investments and managing the mix of investments in the portfolio.
Experience analysis
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When discussing the previous elements of the actuarial control cycle, the need for an actuary to make assumptions about factors that will affect the future profitability of an insurer has been mentioned several times. In setting the assumptions, it is important to have both information about past experience with respect to each of the factors and knowledge of changes in the environment that might result in future experience being different than that of the past. Analysis of past experience provides information about what has happened, including trends that might continue into the future. Experience analysis is useful not only in setting assumptions but also in assessing how closely actual experience has corresponded with previous assumptions. Such assessments are essential to the identification of sources of profits and losses of an insurer. They enable an actuary to revise the assumptions used in calculating technical provisions to reflect changing conditions, helping to ensure that the provisions will be adequate. The information can also used to manage the business more effectively, for example, by revising underwriting criteria to improve the quality of business, targeting marketing efforts to more profitable products and consumers, and adjusting premium rates to achieve profit objectives. Actuaries are often responsible for conducting experience analyses. They develop the methods of analysis, identify and prepare the necessary data, and perform the analyses. They interpret the results, communicate this information to appropriate members of management, and propose actions that might be taken in response to the information.
Profitability
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It is essential that insurers have a clear understanding of the sources of their profits or losses. This information can be used to help identify and deal with problems as they arise. It also aids in the identification of business opportunities, for example, products that have been more profitable than expected and might be more actively promoted. Some products have pricing elements that can be adjusted, for example, premium rates, expense charges, or interest crediting rates. Profitability analysis, along with consideration of likely future conditions and the competitive environment, enables an insurer to make appropriate adjustments to these elements. Some products, referred to as participating or with-profits policies, involve the payment of premiums that are higher than they might need to be, on the understanding that the profits will be shared with policyholders through dividends or bonuses. In order to arrive at an equitable basis for sharing profits with such policyholders, and to help decide what portion of the profits to distribute to shareholders, understanding of sources of profitability and trends in profitability is essential. Actuaries are involved in the analysis of profitability in several ways. They can determine the sources of profits or losses. In some cases, actuaries calculate the present value of anticipated future profits of the insurer, referred to as embedded value. Actuaries develop dividend and bonus scales for participating or with-profits business, and present their recommendations to the board of directors for approval. On a broader scale, actuaries are often involved in developing and implementing business strategies designed to increase the profitability of an insurer. For example, they participate in identifying other insurers that might be acquired or with which an insurer might merge. They assist in determining the value of acquisition candidates. If a line of business is unprofitable,
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actuaries can help to assess whether the business should be run off or sold to another insurer. In such transactions, as well as situations when an insurer is changing its form of organization from mutual to shareholder-owned or vice versa, actuaries are often required to assess the effects of the transaction on policyholders and provide assurance that no class of policyholders will be disadvantaged because of the transaction.
Solvency
Insurers must remain solvent if they are to meet their obligations to policyholders, not to mention generating a positive return on the investment of their owners. Most, if not all, jurisdictions impose requirements regarding the minimum amount of capital that must be maintained by an insurer to help ensure its solvency. In many jurisdictions, capital adequacy requirements are proportional to the risk inherent in an insurers business. Also, some jurisdictions require insurers to perform stress tests, which involve projecting the effects of adverse scenarios on the future solvency of the insurer. Insurers must maintain at least enough capital to meet regulatory requirements, or else face the risk of being forced to cease doing business. However, if an insurer has too much capital in relation to the size and risk of its business, it will be very difficult for the insurer to generate a sufficient return on capital to satisfy its shareholders. Therefore, insurers seek to avoid holding more capital than they need to cover the risk inherent in existing business, referred to as economic capital, and to support expected future growth in their business. Actuaries are often involved in the assessment of solvency and management of capital. They can calculate the minimum capital required for regulatory
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purposes, both currently and based on projections of future growth in business. Actuaries use models to perform the stress tests required by regulators and to determine economic capital. They also participate in the formulation of strategies to make effective use of an insurers capital and to raise additional capital, if necessary.
the industry that evaluate the effect of various forms of possibility, in the past determining the chance of failures and working to reduce their effect. An actuary is an enterprise professional who deals with the economical effect of possibility and concern. Actuaries in the past evaluate the chance of activities and evaluate the it all depends outcomes in order to reduce failures, emotional and economical, associated with not sure unwanted activities. Since many activities, such as death, cannot be prevented, it is helpful to take measures to reduce their economic effect when they occur. These risks can affect both sides of the balance sheet, and require asset administration, obligation administration, and assessment expertise. Logical expertise, enterprise knowledge and understanding of human behavior and the vagaries of information techniques are required to design and manage programs that control possibility. Actuaries are employed in a number of insurance areas, including life insurance, property insurance and control. Actuaries offer expert examination of economic security techniques, with a focus on their complication. 1. Designing and pricing contracts 2. Monitoring the funds required to provide the benefits promised. 3. Recommending the bonuses to be added to with- profit policies. Now-a-days, actuaries may also provide expert advice on investment, get involved in the planning and marketing of products, and advice on strategic risk measurement- and so be involved in almost any aspect of a companys activity.
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Reserving -in reserving they apply statistical techniques to assess the likely outcome of general insurance liabilities, typically, and the provisions that are needed for reporting purposes.
Rating -the pricing actuary assesses the frequency and average amount of claims to estimate premiums.
Capital modeling -for capital modeling the actuary projects both the liability and assets of insurers to assess solvency and future capital needs.
General
insurance
or
non-life
insurance
policies,
including motor
and household policies, provide payments depending on the loss from a particular financial event. General insurance typically comprises any insurance that is not determined to be life insurance. It is called property and casualty insurance in the U.S. or non-life insurance. General insurance is broadly divided into two areas, personal lines and commercial lines. Commercial lines products are usually designed for
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relatively large legal entities. These would include workers' comp (employers liability), public liability, product liability, commercial fleet and other general insurance products sold in a relatively standard fashion to many organisations. There are many companies that supply comprehensive commercial insurance packages for a wide range of different industries, including shops, restaurants and hotels. Personal lines products are designed to be sold in large quantities. This would include motor insurance, household insurance, pet insurance, creditor insurance and others.
COMMUNICATIONS WITH THE CLIENT With the large amount of data available, more emphasis can be placed on the clients data and less on the industry data. Due to the large number of claims, it is possible for the actuary to do more analysis that reflects the unique experience of the client. Because of the emphasis on the clients data, the actuary may have substantial direct contact with the client. An important use of the actuarial study is the calculation of the appropriate accruals for the projected period and the required reserves for prior periods. Determining appropriate accruals and required reserves is extremely important for large accounts. Since there is more emphasis on the accruals of the client, there is more interaction directly with the client and the clients financial department. Because of the increased interaction with the client on large accounts, the actuary can play a major role in solidifying the account with the broker. In some instances the actuary may have more contact with the clients financial department than any other individual in the brokerage firm. Another function that an actuary may be asked to perform is to present the findings of the study to the clients auditors. This may be a very important role for the actuary, because the amount of the required reserve and loss projection can be material to the client and to the auditors evaluation of the clients financial balance sheet. PREPARING A LOSS PROJECTION The ability of the actuary to analyze the clients data is a critical role. The process begins with the actuary analyzing the most recent evaluation of detailed data for the client. The actuary needs to ascertain whether or not
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allocated loss adjustment expenses are included and whether the losses are limited to some amount or unlimited. The analysis begins by segmenting the most recent evaluation of incurred losses into ranges. The actuary examines this data to see if the losses fit the pattern that the actuary would anticipate for this type of client. If the study has been prepared in the past, then the actuary can compare policy periods at like periods of development. This is extremely important for analyzing the most current period and any possible changes in the initial reserving philosophy. The actuarys experience can be used to analyze the loss distribution to d etermine whether the claim reporting pattern, percentage of claims, and size and number of open claims seem reasonable. This is information that can be very important to the client and broker, especially when a client changes claims adjustment organizations. The determination of appropriate loss development factors can be very difficult and uses all the experience of the actuary. For medium sized accounts, quite often the clients data is not fully credible to project losses or to calculate required reserves. The actuary must then augment the clients data with appropriate industry data. Again, the experience of the actuary becomes very important in determining what industry data to use and what weight to apply to the industry data. The use of industry data is a critical issue for medium sized accounts. THE ACTUARY AS A RESOURCE FOR BROKERS The actuary has the responsibility in the brokerage firm to keep the brokers aware of changes in the actuarial environment. The medium to convey the information can range from a phone call to a seminar. Some examples are:
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Preparing various insurance exhibits applicable to their clients, such as loss development factors for a municipality. Providing comment on loss data or analysis from other sources submitted by the broker Participating in or leading an internal seminar for the brokers on a specific topic or insurance issue.
also certify each year that the data are adequate to support the valuation and that the premiums charged have been adequate in relation to the corresponding liabilities being taken on, having regard to the overall financial position of the company. The Appointed Actuary must be satisfied at all times that, if he or she were to carry out a full actuarial valuation, the financial position would be satisfactory. The formal published valuation takes place only annually, is submitted to the supervisor six months after the date to which it relates, and may not be analysed in detail until some weeks (or even months) after that. The Appointed Actuary, on the other hand, is deemed to be in such a key position within the company that he or she should have a good idea of what the position is at any particular moment, and not just at year-ends. In order to be satisfied on this, the Appointed Actuary has to monitor in detail all aspects which could impinge upon the companys financial position, in particular: product design methods of marketing volumes of business premium rates options and guarantees surrender values and paid-up values investments held and changes in investment policy derivative exposures current and likely future level of expenses current and likely future tax basis reinsurance arrangements claims handling policy
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any contingent liabilities. The Appointed Actuary needs to be able to model the financial behaviour of the company between valuations, so as to be able to estimate the effects of these various factors on the overall financial condition and, in particular, on the companys ability to meet (and continue to meet) the minimum solvency margin requirement. The Appointed Actuary is clearly expected to act as a front-line controller of prudential financial management, lessening the need for close regulatory attention, which could never in practise give the same degree of continuous monitoring as is required to be undertaken by the Appointed Actuary. The link to the insurance supervisor is effected through the professional duty to blow the whistle if the Board or the management of the company persists in pursuing a strategy which the Appointed Actuary believes may have a serious adverse financial impact on the company, in spite of attempts to persuade them otherwise. It is also recommended, that the Appointed Actuary should report regularly to the Board of Directors on the possible future financial condition of the company. This requires work to be carried out on a dynamic financial analysis of the company, investigating the possible impact on the future financial condition of a variety of plausible adverse scenarios. The idea is to help the Board to understand the risks to which the company is most vulnerable, and to formulate strategies for managing and controlling those risks.
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1. An appointed actuary shall have access to all information or documents in possession, or under control, of the insurer if such access is necessary for the proper and effective performance of the functions and duties of the appointed actuary. 2. The appointed actuary may seek any information for the purpose of subregulation of this regulation from any officer or employee of the insurer. 3. The appointed actuary shall be entitled, - to attend all meetings of the management including the directors of the insurer; to speak and discuss on any matter, at such meeting,-I. II. III. that relates to the actuarial advice given to the directors; that may affect the solvency of the insurer; that may affect the ability of the insurer to meet the reasonable expectations of policyholders; or IV. to attend, -I. any meeting of the shareholders or the policyholders of the insurer; or on which actuarial advice is necessary;
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II.
any other meeting of members of the insurer at which the insurer's annual accounts or financial statements are to be considered or at which any matter in connection with the appointed actuary's duties is discussed.
In particular and without prejudice to the generality of the foregoing matters, and in the interests of the insurance industry and the policyholders, the duties and obligations of an Actuary of an insurer shall include:--
1. rendering actuarial advice to the management of the insurer, in particular in the areas of product design and pricing, insurance contract wording, investments and reinsurance; 2. ensuring the solvency of the insurer at all times; 3. complying with the provisions of the Act in regard to certification of the assets and liabilities that have been valued in the manner required under the said section; 4. drawing the attention of management of the insurer, to any matter on which he or she thinks that action is required to be taken by the insurer to avoid-(i) any contravention of the Act; or (ii) prejudice to the interests of policyholders; 5. complying with the Authority's directions from time to time;
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6. in the case of the insurer carrying on general insurance business to ensure, -(i) that the rates are fair in respect of those contracts that are governed by the insurer's in-house tariff; (ii) that the actuarial principles, in the determination of liabilities, have been used in the calculation of reserves for incurred but not reported claims (IBNR) and other reserves where actuarial advice is sought by the Authority; 7. in the case of the insurer carrying on life insurance business,-(i) to certify the actuarial report and abstract and other returns as required under section 13 of the Act; (ii) to comply with the provisions of section 21 of the Act in regard to further information required by the Authority; (iii) to comply with the provisions of section 40-B of the Act in regard to the bases of premium; (iv) to comply with the provisions of the section 112 of the Act in regard to recommendation of interim bonus or bonuses payable by life insurer to policyholders whose policies mature for payment by reason of death or otherwise during the inter-valuation period; (v) to ensure that all the requisite records have been made available to him or her for the purpose of conducting actuarial valuation of liabilities and assets of the insurer; (vi) to ensure that the premium rates of the insurance products are fair;
(vii) to certify that the mathematical reserves have been determined taking into account the guidance notes issued by the Actuarial Society of India and any directions given by the Authority;
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(viii) to ensure that the policyholders' reasonable expectations have been considered in the matter of valuation of liabilities and distribution of surplus to the participating policyholders who are entitled for a share of surplus; (ix) to submit the actuarial advice in the interests of the insurance industry and the policyholders; 8. complying with the provisions of the Act in regard to maintenance of required solvency margin in the manner required under the said section; 9. informing the Authority in writing of his or her opinion, within a reasonable time, whether,-(i) (ii) the insurer has contravened the Act or any other Acts; the contravention is of such a nature that it may affect significantly the interests of the owners or beneficiaries of policies issued by the insurer; (iii) the directors of the insurer have failed to take such action as is reasonably necessary to enable him to exercise his or her duties and obligations under this regulation; or (iv) an officer or employee of the insurer has engaged in conduct calculated to prevent him or her exercising his or her duties and obligations under this regulation.
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Indian qualification up to Associate ship level, and in 1992, it started conducting Fellowship level exams. The IAI has been following the UK pattern of examinations since November 2000 with an eye to be a part of global standards set by the International Actuarial Association (IAA). To become an actuary one must be a Fellow of a recognized professional examining body like the Actuarial Society of India (ASI), Mumbai or the Institute of Actuaries, London. The work of an actuary involves a lot of number crunching and the nature of work is quite tedious, nevertheless it offers rewards in terms of intellectual challenge, status, job satisfaction and earnings. As their judgment is the basis of decision making for many business activities, their career paths often lead to upper management and executive positions. Objectives 1. Advancement of the Actuarial profession in India. 2. Facilitating research, arranging lectures on relevant subjects reading papers etc. 3. Providing facilities and guidance for those studying for Actuarial Examination. 4. To promote, uphold and develop the standards of professional education, training, knowledge, practice and conduct amongst Actuaries; 5. To regulate the practice by the Members of the profession of Actuary; 6. To promote, in the public interest, knowledge and research in all the matters relevant to Actuarial Science and its application; and
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7. To do all such things as may be incidental or conducive to the above objects or any of them. Charitable Trust Act, 1950. In 1989, the ASI started examinations up to Associate level, and in 1991, 8. To provide a central Organization for the members of the actuarial profession in India for the purpose of elevating the attainment and status and for promoting the general efficiency of all who are engaged in occupations connected with the pursuits of an actuary; 9. To extend and improve the data and methods of the Science which has its origin in the application of the doctrine of probabilities to the affairs of life and to consider all monetary questions involving, separately or in combination, the mathematical doctrine of probabilities and the principles of interest; 10.To plan, promote and provide for interaction amongst the members, to arrange facilities for the reading of papers, the delivery of lectures, the discussion of topics and for the acquisition and dissemination by other means of useful information and knowledge connected with Actuarial Science and other allied subjects with special reference to Indian conditions; 11.To promote or to conduct work or research of interest to Actuarial Science or to the practice of the Actuary; 12.To prescribe syllabus of studies and hold examinations in subjects pertaining to principles and practice of Actuarial Science with particular reference to Indian conditions, by means of which the attainment of adequate standard can be tested and to award certificates, diplomas and other distinctions to successful candidates;
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13.To provide educational services and other facilities to those studying for actuarial examinations; 14.To disseminate information on Actuarial Science and other allied subjects by undertaking and providing for publication of journals, reports, pamphlets, research papers, books and other literature; 15.To form and maintain either by itself or in collaboration with some other Organization or organizations a library or libraries for use by members of the Society; 16.To confer honorary awards and other distinctions; 17.To institute and award scholarships, prizes, medals and certificates; 18.To maintain liaison with Universities and other educational and professional bodies in India or abroad for the purpose of promoting the objects of the Society; 19.To maintain contact and co-operate with other institutions in any part of the world having objects wholly or partly similar to those of the Society including by way of payment of subscription, enrollment as a member thereof, and generally in such a manner as may be conducive to the furtherance of the common objects as the Society may deem necessary; 20.To discuss and comment on the actuarial aspects of public, social and economic and financial questions which from time to time may be the subject of public interest; 21.To consider the actuarial aspects of legislation, existing and proposed, and to take such action as is considered desirable;
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22.To arrange for the compilation and publication of statistical data and of actuarial tables based thereon; 23.To raise funds by subscription from the members of the Society and to accept donations and bequests for all or any of the purposes of the Society; and 24.Generally do all such things as from time to time may be necessary to elevate the status and procure advancement of the interest of the profession.
Actuarial Workspace
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Insurance companies: Life (24), Non-life including Health (24). Reinsurance companies: SwissRe, MunichRe, RGA, HannoverRe,
GenRe.
consumes increasing amounts of resource. Both of these activities are best performed in-house. Leading companies will recognize that the traditional insurance product pricing process can be separated into separate activities, some of which can be outsourced. For example, the development of loss triangles and the updating of price indications are examples of discrete, measurable work that can be effectively performed remotely. Once these tasks are complete, internal actuaries can then review them and make final, proprietary pricing decisions. Moving the tactical work offshore lowers costs, and frees company resources to focus on higher value activities. There are barriers to this transition. Tradition and inertia will slow adoption. It may take seven to 10 years, but the cost advantages and a need to redirect company talent will eventually result in a shift the norm to a multi-source, onshore/offshore actuarial model. R Krishnamurthy, managing director (distribution consulting), Watson Wyatt Insurance Consulting, agrees that insurance liberalisation has exposed a big gap in the demand and supply ratio of actuaries. "When the Life Insurance Corporation of India was the monopoly player and general insurance was subject to a tariff regime, opportunities were limited and there was no incentive to qualify as actuaries," he says. "Now there is a demand for freshly qualified actuaries, especially in the employee benefit sector. Till now, this sector was largely handled by chartered accountants, but changes will call for professional actuarial valuation." The growth in the Indian financial market is the major reason for the spurt in the demand for actuaries. Apart from the traditional areas of life and general
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insurance, pension and reinsurance, actuaries are now needed to play the roles of consultants, investment advisers and risk managers as well. A number of banks are planning joint ventures to set up insurance companies , which is likely to raise the number of life insurance companies. The number of general insurance companies is also expected to increase. The health insurance sector is also expected to get a big dose of growth. Reforms in pension funds, whenever they happen, are also expected to add to the demand. India has the potential to emerge as a key actuarial back office in the BPO sector as well. A few companies are already in the business of low-level calculations.
COMPARISONS ABROAD
Canada Canada has adopted many of the features of the original U.K. Appointed Actuary model, but has adapted the system to a different regulatory and legal environment and has expanded the role to general insurance companies. Both life and general insurance companies are required to appoint an actuary, and there is a high degree of involvement by the Canadian Institute of Actuaries (CIA), of which the Appointed Actuary must be a member in good standing. The Appointed Actuary is responsible for the calculation of the risk-based capital requirement (Minimum Continuing Capital and Surplus Requirement, or MCCSR), and is also required to report to the Board of Directors regularly on the results of dynamic capital adequacy testing (DCAT), along similar lines to the dynamic financial analysis referred to above in the context of the U.K. United States
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The United States has not yet introduced a full appointed actuary system. On the life side the role has changed in recent years from evaluating the liabilities in accordance with regulatory norms to providing an opinion as to whether the assets are adequate to cover the liabilities. Cash -flow testing, using prescribed investment scenarios, is required to be carried out on a quarterly basis to ensure that, on a realistic basis, assets equal to the statutory liabilities are sufficient to enable policy benefits to be paid out. The actuarial profession has played a significant role in the development of risk-based capital requirements, which have been adopted in all U.S. jurisdictions. A number of states have also introduced the concept of an illustrations actuary to ensure that excessive benefits are not projected at the point of sale. European Union Significant changes have been taking place in insurance regulation in some continental European countries, following the move to the concept of a single license to operate throughout the European Union (EU). The framework directives that completed this process now prevent EU supervisory authorities from exercising prior control on products or premium rates. This has forced a switch from material to normative controls and has greatly increased the responsibilities placed on actuaries in some countries. Germany In Germany new insurance legislation requires each life insurance company to appoint a responsible actuary (Verantwortlicher Aktuar), who has to take professional responsibility for ensuring the adequacy of premium rates and for ensuring that the principles of rating and reserving which are included in the law are observed. The responsible actuary is responsible for reporting to the
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board of directors on proposals for bonus distribution to policyholders and has a whistle-blowing role similar to that of the U.K. Appointed Actuary. Italy Italy has for some years had a requirement for an actuarial opinion on the technical provisions of a general insurance company. This opinion has to be provided to the auditor of the general insurance company, as part of the process of establishing whether the accounts show a true and fair view of the financial situation of the company. After several years of debate, it now seems that an Appointed Actuary role will soon be introduced in respect of the life insurance business. Belgium and the Netherlands Belgium has introduced its own version of the appointed actuary system, for both life and general insurance companies. The Netherlands has a longer tradition of actuarial professional responsibilities in the area of designing and pricing products for life insurance and in respect of non-life reserving. The Dutch actuarial profession (Het Actuarieel Genootschap) also has more experience than most Continental European actuarial associations of developing postgraduate education programs. Japan Japan had a tradition more closely akin to that of Germany, but has now introduced a form of appointed actuary system (Hoken-Keirinin) as part of the deregulatory modifications to the insurance law. The Institute of Actuaries of Japan has issued a standard of practise which was strongly influenced by the U.K. standard.
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France An important exception to the general trend towards giving company actuaries greater professional responsibility may be observed in France, where a rather different tradition has grown up. Although France moved away from a detailed prior-approval system of regulation several years before Germany, it has not considered it appropriate to give a specific role to the insurance company actuary within the insurance law, other than a modest responsibility for approving the use of mortality tables. Responsibility for proper pricing of products, establishing prudent technical provisions and exercising sound and prudent overall financial management rests with the companys Chief Executive and the Board of Directors. Switzerland Switzerland has adopted the same terminology as Germany in the Germanlanguage version of the new insurance law. The responsible actuary role in Switzerland is to be introduced for general insurance companies as well as life insurers. Reinsurers will also be required to comply and, if they are composite reinsurers, to appoint both a responsible life actuary and a responsible non-life actuary. The actuary will be responsible for the integrity of the data needed for pricing and for valuation purposes, as well as for calculating adequate premium rates, prudent provisions and assessing the solvency margin requirement. He or she will also be required to monitor all developments that could affect the financial position. Other Countries Outside Europe and North America, Australia and South Africa both have a long-established professional role for the actuary in environments where
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supervision has always concentrated on reserve adequacy and financial strength. Hong Kong, Singapore and Malaysia have appointed actuary systems and place considerable professional responsibility on the actuary. Other countries in East Asia do not have a strong professional role for the actuary and rely on more prescriptive regulation. This is also the case in most Latin American countries and, to an extent, in the countries in transition in Central and Eastern Europe. In most of the latter countries the actuarial profession has recently undergone a rebirth and actuarial associations are still at an early stage of development.
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Fellow- A member of the Institute of Actuaries of India, on application, is admitted as a Fellow member subject to passing exams and relevant work experience. He has to pass all the exams of the IAI. Affiliate- A Fellow Member, or is a holder of membership considered equivalent to the Fellow Membership of the IAI, of any other institution, is admitted as an Affiliate Member Associates- Students members who have passed all the subjects of CT series and all CA subjects are eligible, on application, to become Associate Member of the Institute Student- Before a candidate start with any examinations, he must be admitted as a student member of the Institute of Actuaries of India. II.) Age <20 20-25 26-30 31-35 36-40 41-45 46-50 51-55 56-60 61-65 66-70 71-80 81-90 91< Total Age wise bifurcation of actuaries Fellow 0 0 19 24 33 45 28 11 10 12 7 36 19 2 246 Associate 0 1 17 16 16 47 10 6 6 12 0 2 1 0 134 Affiliate 0 0 2 5 3 5 1 1 3 1 0 0 0 0 21 Student 91 3110 2229 981 585 593 185 59 15 9 3 4 0 0 7864 Total 91 3111 2267 1026 637 690 224 77 34 34 10 42 20 2 8265
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Actuarial Membership
10% 10% 5% 5% 70%
Institute of Actuaries (UK) Institute of Actuaries of India Institute of Actuaries (Australia) Society of Actuaries (USA) Others
38%
62%
yes no
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V.)
Life
8% 9% 7%
General
49%
Pension Investment
15%
12%
18% 5% 3% 56% 9% 9%
Work Experience
2% 7% 14%
0
14% 63%
1 to 3 4 to 5 6 to 8 9+
1 2
20%
3 4
27%
49
42%
58%
yes
no
X.)
50
yes no
96%
CONCLUSION
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This project has attempted to describe some of the many roles an actuary plays in an insurance firm. I believe and as shown in this project that an actuary plays an important role in the insurance sector and that his work is indispensable. As the market hardens the importance of the role of the actuary will increase. An actuary is an individual who has many duties and responsibilities concomitant to their position. If one in this job role has excellent analytical, comprehension, mathematical and public speaking skills, they will most likely be individuals who excel at their job and produce the highest quality work product possible. If one has all of these aforementioned skills, the position of actuary may be the perfect one to fill. An actuary is the technical expert on life insurance matters studying the mortality of the insuring public, evaluating the financial condition of the insurer, determining the policies to be offered and the premium to be charged, determining the policies to follow in underwriting an investments of its funds, deciding on the bonus that can be declared on the participating policies and so on. A good actuary is a good economist, a good statistician and a good security analyst. Every well-managed insurance company will have an actuary to continuously study its operations and advice the management on the appropriateness of their policies. The periodical valuation of a life insurance company, required to be conducted as per the provisions of the Insurance Act, is the responsibility of the actuary. The premium proposed to be charged by the insurer, has to be
certified by the actuary before they are submitted for the approval of the IRDA.
Annexures
52
Questionnaire
NAME OF THE ACTUARY: NAME OF INSURANCE COMPANY: Q Designation with respect to the Actuarial Society:a) Student c) Affiliate Q Present Age :a) <25 b) 26- 35 c) 36-45 d) >45 b) Fellow d) Associate
Q Actuarial Membership with which of the following Societies? a) Institute of Actuaries, UK b) Indian Actuaries Society c) Institute of Actuaries, Australia d) Society of Actuaries, USA e) Any other. Please SpecifyAns: Q Are you in any specific Actuarial role? a) YES b) NO
Q If yes, which practice area do you perform in? a) Life Insurance c) Health Insurance e) Risk Management g) Pension/ Retirement Benefit Ans: Q If not, what type of work do you do? Specify. Ans: Q Work Experience (with respect to Actuarial):53
Q Rate on a scale of 1-5 the level of efficiency of the Actuarial Society of India (5 being the highest). Ans: Q Who/ What body may receive a copy of the Actuarial Report? a) Board of Directors/ Shareholders b) Supervisory Authority c) Companys Management d) Other Ans: Q Which statements regarding statutory reserving are signed by the Appointed Actuary? a) Actuarial Report b) Report on Solvency c) Balance Sheet d)Annual report
Q Does the Appointed Actuary in any way directly or indirectly report to the Government? a) YES b) NO
Q Does the Appointed actuary report in any way to the professional bodies? a) YES b) NO
Q Are you satisfied with the current status of the Actuarial profession in India? a) YES Ans: (Comments, if any) b) NO
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BIBLIOGRAPHY
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