Nature of Life Insurance Business Role of Actuarial function Roles needing actuarial skills in L. I. Co. Types Of Life Ins Products Product Pricing Profit measures Reinsurance Valuation Of Liabilities Gross Premium Reserve: New GNs Availability of assets to cover liabilities Evaluating worth of the company Projecting the capital requirement Professional responsibilities Implications of IFRS M/S K. A. Pandit
Long term in nature Usually increasing risk Level premiums lead to accumulations of Funds Investment strategy to ensure security and obtain optimal return
Shareholders Policy Holders Chief Actuary Regulatory Authority Professional Bodies Competitors
Product Pricing Reinsurance arrangements Valuation of liabilities Evaluating worth of the company Projecting the capital requirement Asset Liability Management Professional responsibilities
Conventional With Profit (Participating) Conventional Without Profit (Non-Participating) Unit Linked With Profit Unit Link Without Profit Unitised with Profit Universal Life Unitised Without Profit Critical Illness Income Benefit Surgical Riders Group Products e.g. group term insurance
Different Methods of Pricing: Cash-flow method Formula Method
Pricing basis includes : Mortality Morbidity Investment return Expense inflation Tax & duty Withdrawal Statutory basis Expenses : initial, renewal
Pricing basis includes : Rate of return required by shareholders Spilt of profits between shareholders & policyholders Reinsurance arrangements
NPV IRR Discounted Payback period
Find a credit worthy reinsurer acceptable by the regulatory authority Treaty arrangements for all / some products Decide the retention limits for various products considering the risk appetite of the company Get competitive rates Help in product pricing & structuring esp. in new products Different types of reinsurance arrangements : quota share, risk premium, financial reinsurance etc.
Accurate and complete data of all policies issued Evaluation of accrued liability based on appropriate estimates of uncertainties including: Mortality Morbidity Investment return Expense inflation Expenses : initial, renewal Withdrawals (if allowed) All on prudent basis ( Best estimate + MAD) Additional provisions for contingencies Statutory basis
In line with the RBC requirements Non ULIP products by GPM ULIP liabilities are Unit Fund value + non- unit liability GPM to use prospective method, policy by policy valuation GPM to use prudent assumptions: Best estimate + MAD Explicit allowance for future bonuses incl. terminal bonus is required Option & Guarantees to be reserved for explicitly Min reserve is max (Zero, Guaranteed SV) Assumptions are on latest experience & future expectations Need of experience analysis especially for expenses Reserves net of reinsurance. i.e. full credit for reinsurance Additional reserves for: EMR cases, lapsed policies, IBNR etc.
Admissibility of assets is as per the definition of IBSL regulations Asset values normally worked out by Company and audited by Auditors Life Fund worked out after deduction of actual other liabilities and provision Adequacy of Life Fund to cover estimates of liabilities Determining excess of life Fund over liabilities
Through Embedded value (EV) and Appraisal value. EV = PV(future profits from IF buz.) + shareholders share of estate EV is on Best estimate basis Appraisal Value = EV + value of expected new business of co. Used for valuing the shares of the company when listed Takeover/ amalgamation
To ensure the solvency of the company at all times on statutory basis Solvency margin usually prescribed by Supervisors as per Insurance Act or Regulations. Additional capital required in case of shortfall Excess if any over solvency margin can be distributed among shareholders and policyholders as provided by regulations Writing new business Expansion plans
Making sure PRE are met Treat Customers Fairly Whistle blowing role Risk manager Be professional without prejudice towards shareholders/ policyholders
Prescribed methodology for valuation of assets Methodology for valuation of liabilities Realistic valuations may result in changes of values every accounting period Drastic fluctuations to be taken care of
Pricing Valuation Peer Review LAT ALM Evaluating worth of company Use of internationally used actuarial software: Prophet Clientele across the globe