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OBJECTIVES OF THE STUDY
1. To understand the concept of Actuarial Science and the role of Actuariesin Insurance business.
2. To analyze the powers, functions and responsibilities and duties ofactuaries.
3. To study the role of actuaries with reference to life insurance and generalinsurance.
4. To examine the current scenario of Actuarial Science in India.
SCOPE OF STUDY
The scope of study of this project extends into both, Life Insurance andGeneral 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.
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LIMITATIONS
The biggest limitation or drawback that rose during the making of thisproject was the limited awareness about the topic.
Not only the general public but also many Insurance related people arenot aware of this subject.
Also, there are only around 250 Actuaries in India and contacting themwas a major difficulty.
The Actuaries refused to fill in any questionnaire as they are not allowedto fill in any Unregistered Questionnaire.
METHODOLOGY
Primary data-Primary data was collected by way of interaction with a few Actuaries.
They refused to fill in any questionnaire as they are not allowed to fillany Unregistered Questionnaire.
Secondary data-Secondary data was collected through the internet and referring to
Actuarial books.
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WHAT IS ACTUARIAL SCIENCE?
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,
includingprobability,mathematics,statistics,finance,economics,financial
economics, andcomputer 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 ofstochastic actuarial
models with modern financial theory. Many universities have undergraduate
and graduate degree programs in actuarial science.
http://en.wikipedia.org/wiki/Probabilityhttp://en.wikipedia.org/wiki/Mathematicshttp://en.wikipedia.org/wiki/Statisticshttp://en.wikipedia.org/wiki/Financehttp://en.wikipedia.org/wiki/Economicshttp://en.wikipedia.org/wiki/Financial_economicshttp://en.wikipedia.org/wiki/Financial_economicshttp://en.wikipedia.org/wiki/Computer_programminghttp://en.wikipedia.org/wiki/Stochastichttp://en.wikipedia.org/wiki/Stochastichttp://en.wikipedia.org/wiki/Computer_programminghttp://en.wikipedia.org/wiki/Financial_economicshttp://en.wikipedia.org/wiki/Financial_economicshttp://en.wikipedia.org/wiki/Economicshttp://en.wikipedia.org/wiki/Financehttp://en.wikipedia.org/wiki/Statisticshttp://en.wikipedia.org/wiki/Mathematicshttp://en.wikipedia.org/wiki/Probability8/12/2019 Study of the Role of Actuaries in Insurance
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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 situationsinvolving 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.
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HISTORY OF ACTUARIAL PROFESSION.
The basis for actuarial science dates back to ancient times. The funeral
societies of Rome, wherein each member chipped in regularly to pay for the
funerary services of members when their time was up, were the first forerunner
of life insurance. And naturally, someone had to figure out how much each
member would have to pay to cover the upcoming funerals of the aged among
them. These calculations were rough, but given the small number of people in
such societies -- a few dozen to several hundred -- it was relatively easy to
estimate upcoming deaths and the associated costs.
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.
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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.
Actuarial Work space
1. Health and Care Insurance
2. Life Insurance
3. General Insurance (non-life)
4. Pensions & Other Employee Benefits
5. Finance
6. Investment7. Enterprise Risk Management (ERM)
8. Academics
9. Regulatory
10. Re-insurance
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QUALIFICATIONS TO BECOME AN ACTUARY
Some actuarial associations establish qualification standards that must be met
by individuals who wish to become members. The qualification standards often
cover areas such as education, professional knowledge, experience, and
professionalism.
Actuaries require a high level of knowledge of mathematics and statistics. Most
actuaries attain such knowledge through attendance at university. Some
universities offer degrees in actuarial science, although many actuaries have
studied at universities that do not offer such degrees, instead obtaining degrees
in mathematics or related subjects.
The approach to actuarial education varies among jurisdictions. Some place
more emphasis on university studies, while others require more self-study, with
the results tested through examinations developed by the professional
association or, in some cases, a supervisory authority. The IAA has set out a
syllabus of topics in which, at a minimum, competence must be demonstratedby individuals who seek qualification as actuaries.
In addition to meeting educational requirements and successfully completing
professional examinations, many actuarial associations require a minimum
period of practical experience, under the guidance of an experienced actuary,
before an individual can attain full professional qualification. Some
associations require participation in formal training on ethics and
professionalism, and may require the recommendations of one or more
members before an individuals applicationfor membership will be accepted.
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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 thinking4. Practical outlook5. Problem curiosity and business sense with highly developed inter
personal Communication Skills
6. An Aptitude for Mathematics7. 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 Delhi8. 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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RisksInsurers are subject to many types of risk, not only those against which they
insure policyholders, which are called underwriting risks. Other types arecredit, 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.
DesignInsurers 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 theintermediaries 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.
PricingIf 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, non-
insurance 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.
LiabilitiesActuaries 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 pricingprocess, 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.
ssetsActuaries 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.
sset and liability managementRecognizing the importance of having an investment portfolio that is
appropriate to the nature of their obligations, a growing number of insurers
have taken steps to actively manage the relationship between assets and
liabilities on an ongoing basis. The main objective of asset and liability
management (ALM) is to reduce the risk to an insurer that exists if assets andliabilities are mismatched, for example, if a change in market conditions might
cause an increase in the value of liabilities while also causing a decrease in the
value of assets. On a more positive note, ALM can help an insurer to invest its
assets more effectively and generate higher profits. Most insurers that practice
ALM have established committees to oversee this activity. Actuaries
participate in the ALM committee together with investment managers, product
line managers, and financial officers.
Actuaries are often responsible for modeling the asset and liability cash flows,
and assessing the effects of various risk factors on the results. They develop
techniques and measurement tools that can be used in the ALM process to
reduce the effects of these risks. For example, a basic approach to ALM
involves measuring the average duration of expected liability cash flows andinvesting in a portfolio of assets that has the same average duration.
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 previousassumptions. 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.
SolvencyInsurers must remain solvent if they are to meet their obligations to
policyholders, not to mention generating a positive return on the investment oftheir 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 coverthe 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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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 contracts2. 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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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.
THE ROLE OF THE ACTUARY WITH INSURANCE
BROKERS
For insurance brokerage the primary focus of the actuarys role is assisting the
broker in structuring an insurance program for the client. The broker is the
individual responsible for the solicitation of actuarial work from clients and
initiates the request to prepare an actuarial study for the client.
COMMUNICATION WITH THE BROKER
The communication between the broker and actuary is crucial in the
preliminary stage. The actuary needs to clearly identify how the client or
broker is going to use the study. The availability of a prior study may save
significant time and cost if loss and claim count development triangles have
already been prepared. The actuary needs a clear understanding of the clients
business. The clients stockholders annual statement is a good source of
information. If the client is not a publicly traded corporation, then any client
promotional information can be used. After gathering all needed information.
The actuary should send a confirmation memo to the broker outlining the
project and including the expected cost and anticipated completion date.
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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 determine
whether the claim reporting pattern, percentage of claims, and size and numberof 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 calculaterequired 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 asloss development factors for a municipality.
Providing comment on loss data or analysis from other sourcessubmitted by the broker
Participating in or leading an internal seminar for the brokers on aspecific topic or insurance issue.
THE ROLE OF APPOINTED ACTUARIES
A more comprehensive formal involvement of the actuary in the financial
monitoring and control of the insurance business began to be achieved in the
United Kingdom through the introduction in 1974 of the Appointed Actuary
concept, which was first enacted in the Insurance Companies Act 1973.
An important distinguishing feature of this approach from what had gone on
before was the continuous nature of the appointment. The Appointed Actuaryis not just required to carry out specific tasks, such as the periodical valuation
of liabilities and the determination of surplus, but must be identified as a
named individual at all times.
The legislation requires the Appointed Actuary to carry out an annual valuation
of the liabilities of the long-term insurance business and to determine the
surplus in the long-term business fund available for distribution. The
Appointed Actuary must provide an annual certificate detailing the amount of
the required minimum solvency margin and certifying that the amount
published as reserves in respect of the liabilities of the long-term business
constitutes proper provision for those liabilities. The Appointed Actuary must
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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 thecompany 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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POWERS OF APPOINTED ACTUARY:
1. An appointed actuary shall have access to all information or documentsin 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 sub-regulation 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. 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; to attend, --
I. any meeting of the shareholders or the policyholders of theinsurer; or
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II. any other meeting of members of the insurer at which theinsurer'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.
DUTIES AND OBLIGATIONS OF ACTUARIES
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, inparticular 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 onwhich 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 toensure, --
(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 tofurther information required by the Authority;
(iii) to comply with the provisions of section 40-B of the Act in regardto the bases of premium;
(iv) to comply with the provisions of the section 112 of the Act inregard 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 tohim 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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ACTUARIAL SOCIETY OF INDIA
Institute of Actuaries of India.
The Actuarial Society of India (ASI), the only professional body of Actuaries
in India was formed in 1944 and was admitted as a member of the International
Actuarial Association (IAA), an umbrella organization to all actuarial bodies
across the world, in 1979. It was registered in 1982 under registration ofLiteracy, Scientific and Charitable Societies Act XIII of 1960. Its objectives
include the advancement of Actuarial profession in India, providing
opportunities for interaction among members of the profession, facilitating
research, arranging lectures on relevant subjects and providing facilities and
Guidance to those studying for the professional Actuarial Examination.
The Institute of Actuaries Of India (IAI or formally ASI) was initially startedas a non-examining body when Actuaries used to get qualified from Institute of
Actuaries or Faculty of Actuaries of UK. The Institute of Actuaries of India
started conducting Entrance Examinations in India for students of Institute of
Actuaries, UK, in 1975. In 1989, it started conducting examinations for its
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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 ActuarialExamination.
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 aboveobjects 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 actuarialprofession 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 hasits 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, toarrange 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 ActuarialScience or to the practice of the Actuary;
12.To prescribe syllabus of studies and hold examinations in subjectspertaining 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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22.To arrange for the compilation and publication of statistical data and ofactuarial tables based thereon;
23.To raise funds by subscription from the members of the Society and toaccept 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 toelevate the status and procure advancement of the interest of the
profession.
CURRENT SCENARIO IN INDIA
According to R. Kannan, president, Actuarial Society of India, the opening up
of the insurance sector in the country has pushed up the demand for qualified
and senior actuarial students. "About 2,000 candidates enroll with the ASI as
students every 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,Industry
feels there is 20-25% shortfall. " says Kannan. "On the other hand, each of the
15 life insurance and 15 non-life insurance companies needs at least two to
three qualified actuaries."
Apart from the traditional areas of life and general insurance, pension and
reinsurance, actuaries now act as consultants, investment advisers and risk
managers as well. ASI fellowships can be completed in 5-6 years' time.
Actuarial studies can be pursued alongside a full-time job. With about 6 years
of experience, a fellowship and work at a senior position, you can earn Rs 50
lakh a year. To year 2012
Actuarial Workspace
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Insurance companies: Life (24), Non-life including Health (24). Reinsurance companies: SwissRe, MunichRe, RGA, HannoverRe,
GenRe.
Consulting: MNCs such as Tower Watson, Mercer, Milliman andsome Indian Consulting firms.
Work domain: Pensions, Life Insurance, P&C, Solvency IIOrganizations: Deloitte, WNS, Genpact, AonHewitt, Towers Watson,
Swiss Re, E&Y and others.
PREDICTING THE FUTURE ROLE OF ACTUARIES
Several shifts are underway that will result in significant changes in the way
that insurance companies use actuarial resources. An increase in qualified
actuarial resources and a need to move company actuaries into more strategic
activities will offer opportunities that have previously been unavailable. The
exact timing and pace of this change is uncertain, but the economics are so
compelling that the time would soon arrive.
First, over 10,000 people in India are currently sitting for the actuarial
exams. As the result of the growth in the knowledge worker outsourcing
industry, and the privatization of the Indian insurance industry, actuarial
studies are now much more attractive to qualified students. Scarcity will be
reduced as a result of this increasing supply of expertise.
Second, companies increasingly need to apply their internal actuarial talent to
more strategic activities such as sophisticated price modeling and risk
management. Predictive modeling and multi-tier pricing require constant
attention and monitoring. Existing regulation in Europe regarding Solvency
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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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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 ChiefExecutive and the Board of Directors.
Switzerland
Switzerland has adopted the same terminology as Germany in the German-
language 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 Countr ies
Outside Europe and North America, Australia and South Af ri caboth 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 Amer ican countri es 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.
Statistics, Data Analysis and Interpretation
I.) Membership figures as on 31stMarch 2012:
Designation Number of Members
Fellow 246
Affiliate 21
Associate 134
Students 7864
Total 8265
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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 wise bifurcation of actuaries
Age Fellow Associate Affiliate Student Total
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III.) Actuarial Membership
IV.) Whether in a specific Actuarial role?
70%
5%
5%
10%
10%
Actuarial Membership
Institute of Actuaries(UK)
Institute of Actuaries
of India
Institute of Actuaries(Australia)
Society of Actuaries
(USA)
Others
62%
38%
yes
no
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V.) Practice area, if in a specific Actuarial role.
VI.) If not, what type of work?
49%
12%
15%
7%
9%
8%
Life
General
Pension
Investment
RiskManagement
Others
18%
5%
3%
9%
9%
56%
IT
Engineering
Underwriting
Marketing
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VII.) Work experience
VIII.)Efficiency of the Actuarial Society of India
63%
14%
7%
2%14%
Work Experience
0
1 to 3
4 to 5
6 to 8
9 +
7%
13%
20%
27%
33%
Efficiency of the ASI
1
2
3
4
5
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IX.) Reporting to the Government
X.) Reporting to Professional Bodies and Society
42%
58%
Reporting to the government
yes
no
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CONCLUSION
4%
96%
Reporting to Professional Bodies
yes
no
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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
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Questionnaire
NAME OF THE ACTUARY:
NAME OF INSURANCE COMPANY:
Q Designation with respect to the Actuarial Society:-a) Student b) Fellow
c) Affiliate d) Associate
Q Present Age :-a) 45
Q Actuarial Membership with which of the following Societies?a) Institute of Actuaries, UKb) Indian Actuaries Societyc) Institute of Actuaries, Australiad) Society of Actuaries, USAe) Any other. Please Specify-Ans:
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 b) General Insurance
c) Health Insurance d) Re-Insurance
e) Risk Management f) Investment
g) Pension/ Retirement Benefit h) Other. Please Specify
Ans:
Q If not, what type of work do you do? Specify.Ans:
Q Work Experience (with respect to Actuarial):-
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a) 0 b) 1-3 years
c) 4-5 years d) 6-9 years
e) 10-15 years f) 16 +
Q Rate on a scale of 1-5 the level of efficiency of the Actuarial Society ofIndia (5 being the highest).
Ans:
Q Who/ What body may receive a copy of the Actuarial Report?a) Board of Directors/ Shareholdersb) Supervisory Authorityc) Companys Managementd) OtherAns:
Q Which statements regarding statutory reserving are signed by theAppointed Actuary?
a) Actuarial Report c) Balance Sheetb) Report on Solvency d)Annual report
Q Does the Appointed Actuary in any way directly or indirectly report tothe Government?
a) YES b) NOQ Does the Appointed actuary report in any way to the professional
bodies?
a) YES b) NOQ Are you satisfied with the current status of the Actuarial profession in
India?
a) YES b) NO
Ans: (Comments, if any)
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BIBLIOGRAPHY
www.actuaries.org.uk www.actuariesindia.org www.beanactuary.org www.actuarialpost.co.uk www.worldbank.org www.insurancenetworking.com www.actuarialsociety.org www.casact.org
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