Professionalism and application of actuarial skills in the public interest while serving the various stakeholders

Transcription

1 Professionalism and application of actuarial skills in the public interest while serving the various stakeholders

2 Topic Introduction Actuarial Skills Application Choosing Assumption Business Planning Appraisal Value Experience Study Case Study

3 Introduction A profession is distinct from an occupation in that it has given the right to control its own work Eliot Freidson, The Profession of Medicine University of Chicago Press

4 Introduction - Cont Actuarial Profession: An actuary will be trusted to apply his/her expertise in developing financial models to assure that any business initiative makes financial sense. An actuary serves 3 interests: Professionalism Public Interest Stakeholder interest

5 Introduction Cont. Professionalism: - Apply the theory and knowledge appropriately - Responsible for the judgments & solutions made - Be honest with own area of practice/expertise. Public Interest: Provides most valuable products for the public

6 Stakeholder interest: Provides required rate of return (profits) to the shareholders on their invested capital In most cases: value for clients is competing with profit for shareholders

7 Balancing Interest How an actuary should reflect the various competing and conflicting interests professionally in his/her work? Public Stakeholders

8 Actuarial Application

9 Choosing Assumption Some key variables that actuaries need to assume in their work : Interest Rate used for: Pricing: Balancing between having competitive premium in the market and meeting its obligations to pay future claims and benefits.

10 Valuation: Build an asset to meet the liability Investment Return: Guaranteed vs Non Guaranteed portfolio Short term vs Long term investment vehicles and managing its impact on statutory solvency

11 Choosing Assumption Cont. Interest Rate - Cont: Discount Rate: Balancing between risk and return Inflation: Overseeing the future economic condition

12 Choosing Assumption Cont. Expense Allowance: Set with assumed long term sales volume, the higher the sales the lower its cost per unit Lapse Assumption: Supported by the historical data Agency Compensation: Reasonable Competitive

13 Business Planning Sales Volume: Achievable Satisfactory growth to stakeholder Product Mix: Market Trend Profitable to the company Financial Implication

14 Appraisal Value Related parties will depend on the judgment and decision made by an actuary in appraising the value of an insurance company such as: The Buyer (Investor) how much to invest and what to expect from this investment? The Seller (Owner) how much the yield of what they have invested if they divest their investment?

15 Experience Study Monitoring the assumptions: To check if the actual experience is within the assumptions. To decide when an assumption should be updated or To decide when an actual condition should be improved

16 Case Study

17 Case Study 1 ABC Life just hired a consulting actuary to review its distribution costs. The actuary found out that ABC Life had excessive expense overruns in some of the best producing branch/agency. What do you think the consulting actuary should advise to ABC Life management?

18 Case Study 2 Appraisal Value Calculation This year the economic & political condition are not very good for country A where company ABC operates. This results in higher risk discount rate required by the shareholder. Therefore, the AV of the company ABC is not increasing as expected although the sales volume exceeds its target. What an actuary should do?

19 What is Experience? Experience is not what happens to a man; it is what a man does with what happens to him -AldousHuxley