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  • 1. Actuaries in Insurance 2011 A Project Report On“A Study of Actuarial Practices of Insurance Company” In the partial fulfillment of the Degree of Master of Financial Management under the University Of Mumbai By Mr. Warise Rajesh Bablya Jaiwanti Roll No. 18 Masters in Financial Management Under The Guidance Of MR. JAYADEEP MANJESHWAR. Allana Institute of Management Studies and Research CST, Mumbai-400001 2011. Master’s in FinancialManagemen t1
  • 2. Actuaries in Insurance 2011 ACKNOWLEDGMENT One of the pleasant aspects of preparing the project isthe opportunity to thank those who have made the projectcompletion possible. I am grateful to my guideProf. Jayadeep Manjeshwar for his valuable support,professional advice, sustained interest, invaluable help andguidance from the identification stage till the end. I would also like to extend my gratitude to the faculty,library staff for equipping me basics which helped methroughout in the making of the project. My Special thanks to the Director. Vidya Hattangadiand course coordinator, Prof. Lukman, for their invaluablecontribution and help during the study of the project. And finally, I would like to place on record, my sincerethanks to everyone who has directly or indirectly beenhelpful in the successful completion of the project. Master’s in FinancialManagemen t2
  • 3. Actuaries in Insurance 2011 STUDENTS DECLARATION I Rajesh Bablya Warise, the student of AllanaInstitute of Management Studies of Master’s inFinancial Management (MFM) program, Semester 5of the University of Mumbai of 2009 – 2011 batch,hereby declare that this report entitled “Actuary” hasbeen carried out by me during this semester as per thenorms prescribed by the University of Mumbai, and thesame work has not been copied from any source directlywithout acknowledging for the part/ section that has beenadopted from published/ non-published works. I further declare that the information presented inthis project is true and original to the best of myknowledge.Dated:Place: Mumbai (Signature of the Students) (Mr. Rajesh Bablya Warise). Master’s in FinancialManagemen t3
  • 4. Actuaries in Insurance 2011 CERTIFICATE I, Prof. Jayadeep Manjeshwar hereby certify that inthe Third Year of the Master’s in Financial Management(MFM), batch 2009-11 at the Allana Institute ofManagement Studies, has completed the project on“Actuary” under my guidance, as per the norms prescribedby the University of Mumbai, in the academic year 2009-11. I further certify that the information presented in thisproject is true and original to the best of my knowledge andbelief.Dated:Place: Mumbai (Signature of the Guide) (Prof. Jayadeep Manjeshwar) Master’s in FinancialManagemen t4
  • 5. Actuaries in Insurance 2011 INDEX Master’s in FinancialManagemen t5
  • 6. Actuaries in Insurance 2011Sr Page ParticularsNo. No.1. Introduction 072. What is an Actuary? 093. The Role and Responsibilities of an actuary 104. Specific Duties of an Actuary 115. Traits which all Actuaries should possess 136. What is Insurance ? 157. Eligibility 248. The Actuarial Society of India 259. Role of Actuaries in Insurance 2810. Appointed Actuaries 2911. Cessation of appointment of appointed Actuary 3112. Powers of appointed Actuary 3213. Duties and Obligations 3314. Absolute Privilege of appointed Actuary 3615. Growth Rate 3716. New Avenues 3917. Driving Force 4018. Job Prospects and Career Options 4119. Remuneration 44 Master’s in20 Financial Conclusion 45 Managemen21 t6 Bibliography 4622 Books Reference 48
  • 7. Actuaries in Insurance 2011 EXECUTIVE SUMMARYMost people will know something about the professions of accountants, doctorsand lawyers. But tell someone you’re an actuary and more than likely they willlook at you blankly – never having heard of an actuary.The reason for taking this topic is to make everyone aware of work ofactuaries, which is most important in Insurance Company. An actuaryreally plays an important role in Insurance. He deals with the business ofinsurance and is responsible for many areas under the broad category ofinsurance. He is responsible for collecting the data to forecast future risksand see how the predictions will affect various aspects of insurance.Actuaries also hold a legal responsibility for protecting the benefits promised byinsurance companies. Traditionally actuaries have been associated withinsurance sector but in present scenario with the economy opening up actuariesare needed in sectors like non-life insurance, employee benefits, healthinsurance, asset-management, reinsurance, insurance broking houses andconsulting companies. Master’s in FinancialManagemen t7
  • 8. Actuaries in Insurance 2011 INTRODUCTIONNow a days, most of us must have seen, heard and read about companies whichprovide insurance cover to policy holders in case of any eventuality likeaccidents, hospitalization, household hazards, thefts or death and still others wholook after investment schemes, employee benefits, retirement benefits andpension schemes. The policy holders are required to pay a fixed amount asinstallments at regular intervals and they get this money back in the event of anyuntoward incident or upon the maturity of the policy. Have you ever wonderedwho decides as to what amount of money a policy holder should pay as premiumor what sum should be given as pension amount or returns by the company?Well, this exactly is what an actuary does. They calculate insurance risks andpremiums. Technically speaking the job of an actuary is to assess the financialimpact of an uncertain future event. Roughly speaking they look at the financialaspect of disasters; sarcastically speaking they are financial astrologers.An actuary has to combine the skills of a statistician, economist and financier andemploy techniques of probability, compound interest, law, marketing,management etc to predict the outcome of future contingencies and designsolutions to lessen the financial severity of such events.Actuarial profession was formally established in 1848, with the formation ofInstitute of Actuaries, London. In India, traditionally actuaries were found onlyin the life-insurance sector but now with the opening up of the economy they arewanted by non-life insurance companies, banks, stock exchanges, private andgovernment agencies and this are one field where demand exceeds supply. Master’s in FinancialManagemen t8
  • 9. Actuaries in Insurance 2011The Actuarial Society of India (ASI), the only professional body of Actuaries inIndia was formed in 1944 and was admitted as a member of the InternationalActuarial Association (IAA), an umbrella organization to all actuarial bodiesacross the world, in 1979. It was registered in 1982 under registration ofLiteracy, Scientific and Charitable Societies Act XIII of 1960. Its objectivesinclude the advancement of Actuarial profession in India, providing opportunitiesfor interaction among members of the profession, facilitating research, arranginglectures on relevant subjects and providing facilities and Guidance to thosestudying for the professional Actuarial Examination.The Institute of Actuaries Of India (IAI or formally ASI) was initially started as anon-examining body when Actuaries used to get qualified from Institute ofActuaries or Faculty of Actuaries of UK. The Institute of Actuaries of Indiastarted conducting Entrance Examinations in India for students of Institute ofActuaries, UK, in 1975. In 1989, it started conducting examinations for its Indianqualification up to Associate ship level, and in 1992, it started conductingFellowship level exams. The IAI has been following the UK pattern ofexaminations since November 2000 with an eye to be a part of global standardsset by the International Actuarial Association (IAA).To become an actuary one must be a Fellow of a recognized professionalexamining body like the Actuarial Society of India (ASI), Mumbai or theInstitute of Actuaries, London. The work of an actuary involves a lot of numbercrunching and the nature of work is quite tedious, nevertheless it offers rewardsin terms of intellectual challenge, status, job satisfaction and earnings. As theirjudgment is the basis of decision making for many business activities, theircareer paths often lead to upper management and executive positions. Master’s in FinancialManagemen t9
  • 10. Actuaries in Insurance 2011 WHAT IS AN ACTUARY?Most people will know something about the professions of accountants,doctors and lawyers. But tell someone you’re an actuary and more than likelythey will look at you blankly – never having heard of an actuary.If, however, they are aware of the work that actuaries do, they are likely to beimpressed; being an actuary carries quite a reputation. This is partly due to thedifficult exams, but mostly due to the fact that actuaries are experts in a fieldthat is renowned for its complexity and mathematical prowess.An actuary deals with the business of insurance and is responsible for many areasunder the broad category of insurance. The actuary is an individual who willanalyze important data such as mortality, sickness, injury and disability rates anduse that information to aid those involved with insurance. An actuary isresponsible for collecting the data to forecast future risks and see how thesepredictions will affect various aspects of insurance.Any person with minimum 18 years of age and having a high degree of aptitude for mathematics and statistics can take up the course and become an Actuary.A person with a high degree of aptitude for mathematics and statistics canbecome an actuary. The other necessary skills include good communicationskills, ability to use computers and related technology, business sense, a practicaloutlook, a curious bent of mind, the ability to work on ones own and also be ateam player as the situation demands and to be self motivated.. However anaspirant should have single minded devotion, total dedication and a systematicapproach towards problems in order to successfully become an Actuary. Master’s in Financial Managemen t 10
  • 11. Actuaries in Insurance 2011 THE ROLE AND RESPONSIBILITIES OF AN ACTUARYThe daily job duties, which an actuary must complete, are quite vast and varied.This individual wears many hats and must be adept with completing varioustasks on a daily basis. Although many individuals may be unaware of theresponsibilities, which an actuary takes on in their job role, the position ofactuary is one of an important nature.One who accepts the role of actuary is responsible for a multitude of items. Theywill review statistical information relating to rates dealing with mortality,sickness, accidents, disability and retirement. They will take the information thatthey obtain from reviewing statistical data and relay the information toindividuals who need such items to successfully pursue insurance-relatedinterests. The general role of the actuary is to compile the data that they collect insuch a manner that it helps companies deal with payment and coverage issues. Master’s in FinancialManagemen t 11
  • 12. Actuaries in Insurance 2011 SPECIFIC DUTIES OF AN ACTUARYThere are a variety of specific duties, which an actuary must carry out on a dailybasis. The first duty that an actuary must undertake in their job role is to review avariety of documents. These documents relate to statistical information,insurance plans, annuity plans, pension plans, contracts and company policies.The overall goal in reviewing these various document is to construct guidelinesfor which the companies can follow with their customers and employees.Once the actuary has reviewed all of the pertinent documents, the individualmust then construct concise tables evidencing the results of the intense documentreview. The tables will diagram the statistical evidence as well as highlight therecommended route to pursue with regard to disbursements, premiums andretirement funds.An additional specific duty of an actuary is to determine company policy andexplain such policy and its aspects to those who will benefit from it. The actuarymay also work on the policy so that it adequately works to benefit those affectedby the policy.An actuary may also do consulting work and help various companies with theirstatistical needs and company policy construction. One who is an actuary maywork for a specific corporation or many different companies and corporations.Actuaries may also be asked to testify as expert witnesses in various forms oflitigation. Their testimony most often relates to the lifetime earnings anindividual would have seen based on a variety of factors.One who fulfills the role of an actuary may also have to testify before publicagencies with regard to new or revised legislation affecting the companies andcorporations, which it works for. This frequently occurs when a new law is about Master’s in FinancialManagemen t 12
  • 13. Actuaries in Insurance 2011to be passed or the company wishes a particular piece of legislation to becomelaw.The actuary is also the go to individual for any questions relating to their jobresponsibilities asked by the customers of the company. If the questions are bestanswered by the actuary, and then he/she will do so in order to presentstraightforward information to the public.An actuary must also develop mathematical ideas and formulas so that the properdata can be assessed. The actuary must use his/her mathematical abilities toformat equations, which will aid in the resolution of an issue. Master’s in FinancialManagemen t 13
  • 14. Actuaries in Insurance 2011 TRAITS WHICH ALL ACTUARIES SHOULD POSSESSThere are many beneficial traits, which an actuary should possess. First andforemost, an actuary needs to possess wonderful mathematical skills. Since theywill be dealing a great deal with statistical equations and data, having suchmathematical skills will help them to excel in their job responsibilities.Good analytical skills are another important trait which an actuary shouldpossess as it will help them in their job role. As they will need to analyze avariety of documents, having analytical skills, which are more than adequate,will greatly benefit them in the long run.An actuary is an individual who should possess good public speaking skills aswell. In their daily job duties, not only will they need to analyze documents anddata but they will also have to report such data results to company officials andmembers of the public. Therefore, in order to best get their opinions andconclusions across in a straightforward, easy to understand manner, good publicspeaking skills should be a prerequisite to taking on the role of actuary.Creativity is something, which actuaries should possess. From time to time, theywill need to aid company officials in the drafting of company policy and makechanges to the policy. With a little bit of creativity, an actuary will be able to takethe documentation and put such a spin on it that it is formed into a proper andvalid policy.One who is an actuary should also have wonderful research skills. Since many ofthe documents that they need to analyze will not just pop into their laps, it isimportant that actuaries can do good research and find out what they need toknow with regard to statistics and pertinent documents in an efficient andexpedient manner. Master’s in FinancialManagemen t 14
  • 15. Actuaries in Insurance 2011An actuary should also have good working computer skills. Since much of theirwork will involve computers, it is important that the actuary not only be familiarwith computers but know how to maneuver around with them as well.Comprehension skills are also a necessary component for all actuaries to possess.The actuary is an individual who in their job role will need to analyze andinterpret often-complex documents and laws as well. If one has excellentcomprehension skills they will be able to do their job that much better. Master’s in FinancialManagemen t 15
  • 16. Actuaries in Insurance 2011 What is insurance?We face a lot of risks in our daily lives. Some of these lead to financial losses. Insurance is a way of protecting against these financial losses. For a payment (premium), an insurance company will take the responsibility of compensating your financial losses. What is General Insurance?Insurance other than ‘Life Insurance’ falls under the category of General Insurance. General Insurance comprises of insurance of property against fire, burglary etc, personal insurance such as Accident and Health Insurance, and liability insurance which covers legal liabilities. There are also other covers such as Errors and Omissions insurance for professionals, credit insurance etc.Non-life insurance companies have products that cover property against Fire and allied perils, flood storm and inundation, earthquake and so on. There are products that cover property against burglary, theft etc. The non- life companies also offer policies covering machinery against breakdown,there are policies that cover the hull of ships and so on. A Marine Cargo policy covers goods in transit including by sea, air and road. Further, insurance of motor vehicles against damages and theft forms a major chunk of non-life insurance business. Master’s in FinancialManagemen t 16
  • 17. Actuaries in Insurance 2011In respect of insurance of property, it is important that the cover is taken for the actual value of the property to avoid being imposed a penalty should there be a claim. Where a property is undervalued for the purposes of insurance, the insured will have to bear a rateable proportion of the loss. For instance if the value of a property is Rs.100 and it is insured for Rs.50/-, in the event of a loss to the extent of say Rs.50/-, the maximum claim amount payable would be Rs.25/- ( 50% of the loss being borne by the insured for underinsuring the property by 50% ). This concept is quite often not understood by most insureds.Personal insurance covers include policies for Accident, Health etc. Products offering Personal Accident cover are benefit policies. Health insurance covers offered by non-life insurers are mainly hospitalization covers either on reimbursement or cashless basis. The cashless service is offered through Third Party Administrators who have arrangements with various service providers, i.e., hospitals. The Third Party Administrators also provide service for reimbursement claims. Sometimes the insurers themselves process reimbursement claims.Accident and health insurance policies are available for individuals as well as groups. A group could be a group of employees of an organization or holders of credit cards or deposit holders in a bank etc. Normally when a group is covered, insurers offer group discounts. Master’s in FinancialManagemen t 17
  • 18. Actuaries in Insurance 2011Liability insurance covers such as Motor Third Party Liability Insurance, Workmen’s Compensation Policy etc offer cover against legal liabilities that may arise under the respective statutes— Motor Vehicles Act, The Workmen’s Compensation Act etc. Some of the covers such as the foregoing (Motor Third Party and Workmen’s Compensation policy ) are compulsory by statute. Liability Insurance not compulsory by statute is also gaining popularity these days. Many industries insure against Public liability. There are liability covers available for Products as well.There are general insurance products that are in the nature of package policies offering a combination of the covers mentioned above. For instance, there are package policies available for householders, shop keepers and also for professionals such as doctors, chartered accountants etc. Apart from offering standard covers, insurers also offer customized or tailor-made ones.Suitable general Insurance covers are necessary for every family. It is important to protect one’s property, which one might have acquired from one’s hard earned income. A loss or damage to one’s property can leave one shattered. Losses created by catastrophes such as the tsunami, earthquakes, cyclones etc have left many homeless and penniless. Such losses can be devastating but insurance could help mitigate them. Property can be covered, so also the people against Personal Accident. A Health Insurance policy can provide financial relief to a person undergoing medical treatment whether due to a disease or an injury. Master’s in FinancialManagemen t 18
  • 19. Actuaries in Insurance 2011Industries also need to protect themselves by obtaining insurance covers to protect their building, machinery, stocks etc. They need to cover their liabilities as well. Financiers insist on insurance. So, most industries or businesses that are financed by banks and other institutions do obtain covers. But are they obtaining the right covers? And are they insuring adequately are questions that need to be given some thought. Also organizations or industries that are self-financed should ensure that they are protected by insurance.Most general insurance covers are annual contracts. However, there are few products that are long-term.It is important for proposers to read and understand the terms and conditions of a policy before they enter into an insurance contract. The proposal form needs to be filled in completely and correctly by a proposer to ensure that the cover is adequate and the right one. Master’s in FinancialManagemen t 19
  • 20. Actuaries in Insurance 2011 Why should one insure ?One of the main reasons one should insure is to protect one’s belongings and assets against financial loss. When one has earned and accumulated property, protecting it is prudent. The law also requires us to be insured against some liabilities. That is, in case we should cause a loss to another person, that person is entitled to compensation. To ensure that we can afford to pay that compensation, the law requires us to buy liability insurance so that the responsibility of paying the compensation is transferred to an insurance company. Who should buy general insurance?Anyone who owns an asset can buy insurance to protect it against losses due to fire or theft and so on. Each one of us can insure our and our dependents’ health and well being through hospitalisation and personal accident policies. To buy a policy the person should be the one who will bear financial losses if they occur. This is called insurable interest. What kinds of policies are there? Master’s in FinancialManagemen t 20
  • 21. Actuaries in Insurance 2011Most general insurance policies are annual – that is, they last for one year. Some policies are given for longer periods – like fire insurance for residences – and some for shorter periods – like insurance for goods transportation or for emergency medical treatment during foreign travel. How much should I insure for?The amount you insure for is called the sum assured. Normally a policy should cover the value of the asset – either the market value while insuring, or the cost of replacing the asset should it be lost or destroyed. The premium will depend on the sum assured. Can I take two policies and get claims under both of them?In case of an indemnity cover (one that seeks to compensate the actual loss )--for instance, a policy that covers property, if there are two policies in vogue, the loss shall be shared by both the policies. In no case can an insured get more than the actual pecuniary loss he or she has incurred. On the other hand, in respect of benefit policies like the Personal Accident policy, where a fixed compensation is paid, no matter what the actual loss is , one may obtain more than one policy. Master’s in FinancialManagemen t 21
  • 22. Actuaries in Insurance 2011 On what basis is claim paid?In indemnity policies, the upper limit of a claim is the sum assured and this usually applies for the period of the policy. Certain policies, however, allow for reinstatement of the Sum Insured by payment of proportionate premium for the remaining period of the policy. The actual claim will be the actual extent of financial loss as validated by documents like bills. If the property is underinsured, the insured shall bear a rateable proportion of the loss. There can be more than one claim in the policy period but the sum assured is usually the limit for the policy period unless reinstated.Nowadays health insurance policies – which cover hospitalisation costs – have also a cashless settlement of claims. That is, you don’t have to pay for the treatment at the hospital and then make a claim for reimbursement of the expenses. The insurance company has a service provider called the third party administrator (TPA) health services, who liaises with the hospitals and directly makes the payment for your treatment as per the terms of your policy and coverage. Life Insurance Underwriting Master’s in FinancialManagemen t 22
  • 23. Actuaries in Insurance 2011Negative underwriting factors cost you money. We commissioned this study todetermine exactly how much. If you are not able to change your factors to savesome money, at least you will know what they are costing you! Underwriting Factor Company Premium 2 $1,330Total cholesterol = 285 3 $ 730 3 $1,530Cholesterol ratio = 7.0 7 $ 835 1 $1,285Blood pressure = 141/90 6 $ 890 2 $1,330Weight = 210 5 $ 815Family member diagnosed before 60 6 $1,290(heart or cancer) 7 $ 715 2 $1,330Two driving convictions in three years 3 $ 730 Master’s in FinancialManagemen t 23
  • 24. Actuaries in Insurance 2011 What is the periodicity of premium payments?Most general insurance policies are annual and the premium payment is in advance. No risk commences unless you have paid the premium. In some long term policies companies have the facility of collecting premiums periodically. Why do different people have different premiums?The premium is calculated on the extent and nature of the cover you want. A higher sum insured means a higher rate of premium. Similarly a higher risk will be charged a higher premium. An example of this is that an older person will have to pay a higher premium for health insurance for the same sum insured. Sometimes the risk is higher depending on the location of risks – for example in motor insurance in areas where accidents are higher. So the premium will vary according to the nature and severity of the risk.If I buy a policy and don’t make a claim, it is a loss. So, why should I buy insurance?General insurance is not meant to be for savings or investment returns. It is meant for protection. What you pay for is the protection against a risk. To approach it as something from which returns should be obtained is not the correct approach as there is a price to pay for protecting a property worth lakhs for a few hundred rupees. Master’s in FinancialManagemen t 24
  • 25. Actuaries in Insurance 2011 If there are problems with claims what can I do?First you should write to the company and give them sufficient time to respond suitably. If they don’t respond, or it is not a response satisfactory to you, then you can approach the appropriate judicial channel. For complaints relating to personal insurance covers upto a value of Rs.20 lakh, you may approach the Insurance Ombudsman in your area.( HERE ANNOUNCE THE CONTACT INFORMATION OF THE OMBUDSMAN ).The Ombudsman has a technical team that will go into the merits of your case and give an award) If you are unhappy with the outcome with the Ombudsman you still have recourse to consumer courts.We extended a previous study of life insurance quote sites. Note the difference in premium for the same factor. Also, one company may have the high premium for one factor and the low premium for another. See the complete study. Master’s in FinancialManagemen t 25
  • 26. Actuaries in Insurance 2011 ELIGIBILITYThe Actuarial Society of India and Institute of Actuaries, UK are professionalexamining bodies which conduct certificate, associate ship level and fellowshiplevel examinations and on passing these examinations candidates becomeeligible to be admitted as an Associate Member of the society and can use AASIagainst their name as a registered actuary. On passing all the subjects up to andincluding 400 Series and upon satisfying the other criteria specified for thepurpose, candidates become eligible to be admitted as fellow member of theSociety and can use FASI against his/her name as a recognized fellow.A number of universities are offering graduate and postgraduate courses inactuarial sciences. Mere completion of such courses does not make one eligibleto practice as an actuary, but such courses give students better conceptual clarityand training by experts in a classroom environment which makes them betterequipped than if they directly write papers of ASI through self study. To qualifyas an Actuary, a candidate has to pass all examinations in the prescribed subjectsconducted by the professional examining body such as the Actuarial Society ofIndia and the Institute of Actuaries, UK. Master’s in FinancialManagemen t 26
  • 27. Actuaries in Insurance 2011 THE ACTUARIAL SOCIETY OF INDIAThe Actuarial Society of India was established in 1944 and registered as aSociety in 1982 under Act XXI of 1860 registration of Literary, Scientific andCharitable Societies. The Society is a founder member of the International Forumof Actuarial Associations.Objects • 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; • 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; • 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; Master’s in FinancialManagemen t 27
  • 28. Actuaries in Insurance 2011 • To promote or to conduct work or research of interest to Actuarial Science or to the practice of the Actuary; • 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; • To provide educational services and other facilities to those studying for actuarial examinations; • 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; • 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; • To confer honorary awards and other distinctions; • To institute and award scholarships, prizes, medals and certificates; • 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; • 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; • 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; Master’s in FinancialManagemen t 28
  • 29. Actuaries in Insurance 2011 • To consider the actuarial aspects of legislation, existing and proposed, and to take such action as is considered desirable; • To arrange for the compilation and publication of statistical data and of actuarial tables based thereon; • 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; andGenerally 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. ROLE OF ACTUARIES IN INSURANCEActuaries are experts who perform actuarial analysis of insurance rates, ratingprocedures, rating plans, and schedules of insurance companies. These areprofessionals who are experienced in reviewing and analyzing insurance Master’s in FinancialManagemen t 29
  • 30. Actuaries in Insurance 2011operations, reserves and underwriting procedures and provide technicalassistance regarding actuarial matters to policy examiners and other technicalstaff. In other words they are the people who ascertain in advance the uncertainevents that could take place in future and come to a financial conclusion.Actuaries are involved in pricing, product design, financial management andcorporate planning. They use their professional expertise in solving complicationfinancial problems by combining their theoretical as well as practical knowledge.Actuaries also hold a legal responsibility for protecting the benefits promised byinsurance companies. Their role demands the highest standards of personalintegrity and application of professional skills. Actuaries balance their role inbusiness management with responsibility for safeguarding the financial interestsof the public APPOINTED ACTUARIES:Procedure for Appointment of an Appointed Actuary: Master’s in FinancialManagemen t 30
  • 31. Actuaries in Insurance 20111) An insurer registered to carry on insurance business in India shall, subject tosub-regulation, appoint an actuary, who shall be known as the AppointedActuary for the purposes of the Act.2) A person shall be eligible to be appointed as an appointed actuary for aninsurer, if he or she shall be------ (i) ordinarily resident in India; (ii) a Fellow Member of the Actuarial Society of India; (iii) an employee of the life insurer, in case of life insurance business; (iv) an employee of the insurer or a consulting actuary, in case of general insurance business; (iv) a person who has not committed any breach of professional conduct; (v) a person against whom no disciplinary action by the Actuarial Society of India or any other actuarial professional body is pending; (vi) not an appointed actuary of another insurer; (vii) a person who possesses a Certificate of Practice issued by the Actuarial Society of India; and (viii) not over the age of seventy years.(3) An insurer shall seek the approval of the Authority for the appointment ofappointed actuary, submitting the application in Form IRDA-AA-1.(4) The Authority shall, within thirty days from the date of receipt of application,either accept or reject the same:Provided that before the rejecting the application, the Authority shall give anopportunity of being heard to the insurer.(5) If an insurer does not receive approval within thirty days of the receipt ofsuch application by the Authority, the insurer shall deem that the approval hasbeen granted by the Authority. Master’s in FinancialManagemen t 31
  • 32. Actuaries in Insurance 2011(6) An insurer, who is unable to appoint an appointed actuary in accordance withsub-regulation (2), shall make an application to the Authority in writing forrelaxation of one or more conditions mentioned in sub-regulation 2.(7) The Author all, on receipt of the application referred to in sub-regulation (6),communicate its decision to the insurer within thirty days of receipt of suchapplication.(8) The appointment of an appointed actuary shall take effect from the date ofapproval by the Authority. CESSATION OF APPOINTMENT OF APPOINTED ACTUARY. Master’s in FinancialManagemen t 32
  • 33. Actuaries in Insurance 2011(1) An appointed actuary shall cease to be so, if he or she has been given noticeof withdrawal of approval by the Authority on the following grounds: (a) that he or she ceases to be eligible in accordance with sub-regulation (2) of regulation (3), or; (b) that he or she has, in the opinion of the Authority, failed to perform adequately and properly the duties and obligations of an appointed actuary under these regulations.(2) The Authority shall give an appointed actuary a reasonable opportunity ofbeing heard, if he or she has been given a notice of withdrawal of approval by it.(3) If a person ceases to be an appointed actuary of an insurer otherwise than onthe grounds mentioned in sub-regulation (1), the insurer and the appointedactuary shall intimate the Authority the reasons therefore within fifteen days ofsuch a cessation. POWERS OF APPOINTED ACTUARY: Master’s in FinancialManagemen t 33
  • 34. Actuaries in Insurance 2011(1) An appointed actuary shall have access to all information or documents inpossession, or under control, of the insurer if such access is necessary for theproper and effective performance of the functions and duties of the appointedactuary.(2) The appointed actuary may seek any information for the purpose of sub-regulation (1) of this regulation from any officer or employee of the insurer.(3) The appointed actuary shall be entitled, --(a) to attend all meetings of the management including the directors of theinsurer;(b) to speak and discuss on any matter, at such meeting,-- (i) that relates to the actuarial advice given to the directors; (ii) that may affect the solvency of the insurer; (iii) that may affect the ability of the insurer to meet the reasonable expectations of policyholders; or (iv) on which actuarial advice is necessary;(c) to attend, -- (i) any meeting of the shareholders or the policyholders of the insurer; or (ii) any other meeting of members of the insurer at which the insurers annual accounts or financial statements are to be considered or at which any matter in connection with the appointed actuarys duties is discussed. DUTIES AND OBLIGATIONS Master’s in FinancialManagemen t 34
  • 35. Actuaries in Insurance 2011 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 andobligations of an appointed actuary of an insurer shall include:--(a) rendering actuarial advice to the management of the insurer, in particular inthe areas of product design and pricing, insurance contract wording, investmentsand reinsurance;(b) ensuring the solvency of the insurer at all times;(c) complying with the provisions of the section 64V of the Act in regard tocertification of the assets and liabilities that have been valued in the mannerrequired under the said section;(d) complying with the provisions of the section 64 VA of the Act in regard tomaintenance of required solvency margin in the manner required under the saidsection;(e) drawing the attention of management of the insurer, to any matter on whichhe 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;(f) complying with the Authoritys directions from time to time;(g) 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; Master’s in FinancialManagemen t 35
  • 36. Actuaries in Insurance 2011 (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; (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;(h) 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 insurers 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; Master’s in FinancialManagemen t 36
  • 37. Actuaries in Insurance 2011(i) informing the Authority in writing of his or her opinion, within a reasonabletime, whether,-- (i) the insurer has contravened the Act or any other Acts; (ii) 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. Master’s in FinancialManagemen t 37
  • 38. Actuaries in Insurance 2011 ABSOLUTE PRIVILEGE OF APPOINTED ACTUARY.(1) An appointed actuary shall enjoy absolute privilege to make any statement,oral or written, for the purpose of the performance of his functions as appointedactuary. This is in addition to any other privilege conferred upon an appointedactuary under any other Regulations.(2) Any provision of the letter of appointment of the appointed actuary, whichrestricts or prevents his duties, obligations and privileges under these regulations,shall be of no effect.Applicability to reinsurance business.-- These regulations shall apply to reinsurers carrying on reinsurance business inIndia. Master’s in FinancialManagemen t 38
  • 39. Actuaries in Insurance 2011 GROWTH RATEAccording to R. Kannan, president, Actuarial Society of India, the opening up ofthe insurance sector in the country has pushed up the demand for qualified andsenior actuarial students. "About 2,000 candidates enroll with the ASI as studentsevery year. But the total number of actuaries available in India is only about 225.Of these there are just 40 people in the 20-60 age group," says Kannan. "On theother hand, each of the 15 life insurance and 15 non-life insurance companiesneeds at least two to three qualified actuaries."While there is no concrete forecast on what the demand for actuaries will be, EBalaji, COO, Ma Foi Management Consultants, a human resource consulting andrecruitment firm that signed up about 40 actuaries for a single BPO client in end-2005, says that there is generally a 20-25 per cent shortfall in supply.R Krishnamurthy, managing director (distribution consulting), Watson WyattInsurance Consulting, agrees that insurance liberalisation has exposed a big gapin the demand and supply ratio of actuaries. "When the Life InsuranceCorporation of India was the monopoly player and general insurance was subjectto a tariff regime, opportunities were limited and there was no incentive toqualify as actuaries," he says. "Now there is a demand for freshly qualifiedactuaries, especially in the employee benefit sector. Till now, this sector waslargely handled by chartered accountants, but changes will call for professionalactuarial valuation."At the moment, qualified actuaries find the going good. Consider Anil Singh, 37.He started out as an actuarial trainee with LIC in 1991, soon after completing hisMasters in Statistics from Lucknow University. While working with LIC, hestudied with the ASI and, in 1995, became an ASI associate. After a break, Singh Master’s in FinancialManagemen t 39
  • 40. Actuaries in Insurance 2011qualified as an actuarial fellow in 1999. Subsequently, he worked with a coupleof private sector insurance companies as a senior actuarial analyst and is now thechief actuary with Bajaj Allianz Life Insurance, taking home an annual paypacket of Rs 40 lakh (Rs 4 million). Master’s in FinancialManagemen t 40
  • 41. Actuaries in Insurance 2011 NEW AVENUESLow supply, high demand: There are only 225 actuaries in India. Industry feelsthere is 20-25% shortfall.Larger profile: Apart from the traditional areas of life and general insurance,pension and reinsurance, actuaries now act as consultants, investment advisersand risk managers as well.Hands on: ASI fellowships can be completed in 5-6 years time. Actuarial studiescan be pursued alongside a full-time job.Money magic: With about 6 years of experience, a fellowship and work at asenior position, you can earn Rs 50 lakh a year. Master’s in FinancialManagemen t 41
  • 42. Actuaries in Insurance 2011 DRIVING FORCEThe growth in the Indian financial market is the major reason for the spurt in thedemand for actuaries. Apart from the traditional areas of life and generalinsurance, pension and reinsurance, actuaries are now needed to play the roles ofconsultants, investment advisers and risk managers as well. A number of banksare planning joint ventures to set up insurance companies in 2007, which is likelyto raise the number of life insurance companies from 16 to more than 20. Thenumber of general insurance companies is also expected to increase from 12 toaround 15.The health insurance sector is also expected to get a big dose of growth. VJaganathan, managing director of Star Health Insurance, says there is hugepotential for the sector in a populous country like India. Apollo Hospital, forinstance, is close to establishing a health insurance company. Reforms inpension 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 sectoras well. A few companies are already in the business of low-level calculations.Once the supply pool expands, India can take up more complex and morelucrative back office work, says Krishnamurthy. Master’s in FinancialManagemen t 42
  • 43. Actuaries in Insurance 2011 JOB PROSPECTS & CAREER OPTIONSTraditionally actuaries have been associated with insurance sector but in presentscenario with the economy opening up actuaries are needed in sectors like non-life insurance, employee benefits, health insurance, asset-management,reinsurance, insurance broking houses and consulting companies.The job of an actuary involves formulating policies and calculating the premiumto be charged. For this they assemble and analyse data to estimate the probabilityof such eventualities as death, sickness, injury, disability and property loss andformulate a sum which is advantageous to the customer as well as the company.In areas where employee benefits and retirement/ pension schemes are dealt, theactuaries have to calculate the amount of money to be paid as contribution topension fund in order to generate a certain income level post-retirement.Actuaries in administrative positions have to explain technical matters toexecutives, government officials, shareholders, policyholders. Actuaries workingin tandem with government/ government agencies are responsible for designingsocial security and Medicare plans. Many of these professionals work asindependent consultants providing actuarial advice to clients for a fee. Some alsoprovide investment advice. Actuaries have scope for career growth not only inIndia but also in countries like USA, UK, Canada and Australia where theyalready have the necessary infrastructure and support system available.Some of the potential employers are:Life Insurance Master’s in FinancialManagemen t 43
  • 44. Actuaries in Insurance 2011 1. AMP Sanmar Life Insurance CoLtd; 2. Allianz Bajaj Life Insurance Co Ltd; 3. Birla Sun Life (Distributor Co Ltd); 4. Aviva Life Insurance Co Ltd.; 5. HDFC Standard Life Insurance Co Ltd.; 6. ICICI Prudential Life Insurance Co Ltd.; 7. ING Vysya Life insurance Co Ltd; 8. Om Kotak Mahindra Life Insurance Co Ltd.; 9. Max New York Life Insurance Co Ltd.; 10. Met Life Insurance Co Ltd.; 11. SBI Life Insurance Co LTD; 12. TATA AIG Life Insurance Co Ltd; 13. Life Insurance Corporation of IndiaNon-Life Insurance 1. Bajaj Allianz; 2. HDFC Chhub GIC ltd; 3. ICICI Lombard General Insurance Co Ltd; 4. IFFCO-TOKIO General Insurance Co Ltd.; 5. Reliance GIF; Master’s in FinancialManagemen t 44
  • 45. Actuaries in Insurance 2011 6. Royal Sundaram GIC; 7. Cholamandalam GIC; 8. TATA AIG; 9. Oriental Insurance; 10. United India Insurance.; 11. National Insurance Co; 12. General Insurance Corporation; 13. New India Assurance CompanyActuarial Apprentices with LICThe Life Insurance Corporation of India takes in candidates who are Graduates/Postgraduates with Mathematics and Statistics as main subjects with 60% ormore marks in aggregate and coming in the age-group 18-25 years. The selectionis based on a written test conducted by LIC which consists of two papers. Paper Iincludes Essay Writing (Hindi or English) and paper II comprising ofMathematics or Statistics or Actuarial Science. Candidates who have passed oneor more examination of the ASI or Institute of Actuaries (London) or thosehaving PG Diploma in Actuarial Science with more than 50% marks in aggregateare exempted from appearing for the exams. Master’s in FinancialManagemen t 45
  • 46. Actuaries in Insurance 2011 REMUNERATIONIf you can survive the grilling tests, there is a payoff - the median annual salaryfor an actuary is handsome. Actuaries are globally in demand and can commandhefty pay packets, salaries and perks. No wonder then that this profession hasbeen rated among the best jobs in the US.In India the trend is slowly picking up. Stipend for an actuarial trainee per monthin India is around Rs 25,000 per month. Insurance companies and consultingfirms give merit to experience and qualifications with salary packets rangingfrom 8 lacs per annum for beginners to around 40 lacs per annum for those insenior positions. In UK a qualified actuary can earn 20 lacs per annum. Master’s in FinancialManagemen t 46
  • 47. Actuaries in Insurance 2011 CONCLUSIONAn actuary is an individual who has many duties and responsibilitiesconcomitant to their position. If one in this job role has excellent analytical,comprehension, mathematical and public speaking skills, they will most likely beindividuals who excel at their job and produce the highest quality work productpossible. If one has all of these aforementioned skills, the position of actuarymay be the perfect one to fill.An actuary is the technical expert on life insurance matters studying the mortalityof 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, Master’s in FinancialManagemen t 47
  • 48. Actuaries in Insurance 2011deciding on the bonus that can be declared on the participating policies and soon. A good actuary is a good economist, a good statistician and a good securityanalyst.Every well-managed insurance company will have an actuary to continuouslystudy its operations and advice the management on the appropriateness of theirpolicies. The periodical valuation of a life insurance company, required to beconducted as per the provisions of the Insurance Act, is the responsibility of theactuary. The premium proposed to be charged by the insurer, has to be certifiedby the actuary before they are submitted for the approval of the IRDA. - Cached - - Cached - - Cached- Similar Master’s in FinancialManagemen t 48
  • 49. Actuaries in Insurance -Cached - - Cached - - Cached - - Cached - - Cached - - Cached – - Cached - - Cached - - Cached - Master’s in FinancialManagemen t 49
  • 50. Actuaries in Insurance 2011 BOOKS:IRDA: IC33 LIFE INSURANCEPrinciples of InsurancePractice of Life AssurancePractice of General InsuranceRegulations of Insurance BusinessLife Assurance UnderwritingHealth Insurance Master’s in FinancialManagemen t 50
  • 51. Actuaries in Insurance 2011Foundation of Actuarial ScienceGeneral Insurance UnderwritingGeneral Insurance Accounts preparation and Regulation of InvestmentFire Insurance UnderwritingConsequential Loss Insurance (Fire)Fire Insurance ClaimsFire & Consequential Loss InsuranceFire Insurance CoveragesFire Rating and UnderwritingMarine Insurance ClaimsMarine InsuranceAgricultural InsuranceMotor InsurancePersonal Accident, Sickness & Misc. InsuranceLiability InsuranceEngineering InsuranceMiscellaneous InsuranceLiability & Engineering InsuranceGroup Insurance & Retirement Benefit SchemesReinsurance ManagementLaw & Economics of InsuranceInsurance SalesmanshipPrinciples and Practice of Insurance and Survey and Loss Assessment Master’s in FinancialManagemen t 51
  • 52. Actuaries in Insurance 2011Foundations of Casualty Actuarial Science – Part IFoundations of Casualty Actuarial Science – Part IILife InsuranceGeneral InsuranceInsurance BrokingThe Actuary Magazine Master’s in FinancialManagemen t 52