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

Chief

Actuary

Regulatory

Authority

Shareholders

Policy

Holders

CompetitorsProfessional

Bodies

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