Anda di halaman 1dari 32

The Actuary India March 2011



11 12 14





Authorship of the article titled How Actuarial- Actuarial Inspiration: William Shakespeare in the November 2010 issue of the Actuary India magazine, had been erroneously attributed to Ms. Megha Mehtab Puri. It was essentially a reprint of an article written by Dan Skwire for the American Academy of Actuaries Contingencies publication in 2007.

Editor Taket, Nick Tel: +91/22/6740-3333 Email: Manager (Library and Publishing) Rautela, Binita Tel: +91 22 6784 3325 Email: News Editor Sharma, Sunil Email: Puzzle Editor Mainekar, Shilpa Email:

COUNTRY REPORTERS Smith, John Laurence New Zealand Email: Burra, Pravin African Continent Email: Kakar, Gautam European Union (EU) Email: Chung, Phuong Ba Taiwan, Hong Kong & Japan Email: Ali, Syed Asad USA Email: Cheema, Nauman Pakistan Email: Leung , Andrew Thailand Email:

Responsibility for authenticity of the contents or opinions expressed in any material published in this Magazine is solely of its author and the Institute of Actuaries of India, any of its editors, the staff working on it or "the Actuary India" is in no way holds responsibility there for. In respect of the advertisements, the advertisers are solely responsible for contents and legality of such advertisements and implications of the same.
The tariff rates for advertisement in the Actuary India are as under: Back Page colour Rs. 35,000/Full Page b/w Rs. 20,000/Full page colour Rs. 30,000/Half Page b/w Rs. 15,000/Half Page colour Rs. 20,000/Your reply along with the details/art work of advertisement should be sent to Printed and Published monthly by Gururaj Nayak, Administrative Ofcer, Institute of Actuaries of india at Alco Corporation, A-1 / 16, Ground Floor, Shah - Nahar Indust. Estate, Lower Parel (W) Mumbai - 400 013 for Institute of Actuaries of india 302, Indian Globe Chambers, 142, Fort Street, Off D N Road, Near CST (VT) station, Mumbai 400 001. Tel +91 22 6784 3325 / 6784 3333 Fax +91 22 6784 3330 Email : Webside : For circulation to members, connected individuals and organizations only.

ENQUIRIES ABOUT PUBLICATION OF ARTICLES OR NEWS Please address all your enquiries with regard to the magazine by e-mail at Kindly do not send it to editor or any other functionaries.

Indian Actuarial Profession Serving the Cause of Public Interest


The Actuary India March 2011



Inaugural address by N Rangachary at the 13TH Global Conference of Actuaries
and became the member of the three accounting bodies that we have today in this country. I thanked him then for that honour and I still thank you Mr. Khan for having conferred that great honour on me. The second thing which compelled me to be present today with you here, is the last time that I met you actuaries at a conference was 2003 and it was also the year I left the Regulators ofcewhen you had a different constitution, when you must have been attended by a minimum of about 2000 persons drawn from different faculties and that gave Subrahmanyam and me an idea that we should also try to sponsor that kind of a conference in India, though not of that magnitude. We should try to introduce to the Indian market, the values and the profession of actuarial science to the industry as well as to the members of the public. And in 1999 when we nalized the regulations in the authoritys ofce, we mooted this subject with the ASI (the predecessor of the Institute) and with Mr. Khan. We were a little skeptical about the reception that it will receive in the hands of the Indian Actuarial Profession. What people outside India will think about a nascent profession where the number of actuaries currently in employment or in practice could be counted on ones nger tips; where apparently there was no scope for actuarial work? Somehow or the other we had to go ahead with this. ASI was not in that afuent situation as it is today. So we roped in FICCI (Federation of Indian Chambers of Commerce and Industry) through the kind courtesy of a friend of mine, who was then advisor to FICCI, Mr. Murari. FICCI saw the advantage in co-hosting this. And that is how the rst of these conferences was held in Delhi in 1999, with IRDA, ASI and FICCI, sponsoring the event. The response was very encouraging and this event has now become an annual event. And I am glad to notice that the attendance of these conferences has been increasing year after year. In the initial years at least up to 2003, when I was there, you could nd a lot of 5

(Introduced to the audience by Peter Akers, Chairperson 13th GCA Organising Group) Thank you Peter for that introduction. You have made my life miserable with that introduction. Mr. Khan, Mr. Akers, Mr. Cecil Bykerk President of the International Actuarial Association, and leaders of the actuarial professions across the globe, and friends.I admit it is a great privilege to have been granted by the Institute of Actuaries of India to be present amongst you today as part of the 13th Global Actuarial Conference, which the institute is holding at Mumbai. About six or seven weeks ago Mr. Khan had come home to invite me to be present to inaugurate this conference. I had expressed my own fears and doubts whether he was choosing the right man for the job. My concern was centered on two things; number one, I left the Regulators ofce eight years ago, and since then have been very determinedly keeping myself out of any issues concerning insurance, secondly whether a contemporary person would not have been a better choice for inaugurating a professional conference. However, two things gave me the courage to appear before you today. The rst one was the great honour that Mr. Khan had done me when he was the President of ASI, to have conferred on me an honorary fellowship of this institute, which I admit it to be a great honour to be a part of this profession. At that time I had made a mention that in my early days I wanted to be an actuary. But somehow or the other I got into the profession of accounting

were still a society and now that you have become a constitutional body, you are on par with the other chartered institutes which govern the professions of accounting, cost accounting and company secretaries in this country. And this being the rst of such occasions where I have been presented to be amongst you as chartered members of this profession of actuarial science, I thought that I should show my face and be part of your festivities. I would like to mention how this global conference got started. In 1996, Mr. K Subrahmanyam and I, were sent out on a global mission by the Government of India. One of the stops that we had was in Ottawa, where we were invited to attend the Canadian Actuarial Professions Conference. Believe me, that conference

Indian Actuarial Profession Serving the Cause of Public Interest

The Actuary India March 2011

people, grey haired with a lot of portfolios being carried, coming and attending these conferences with lines of worry on their faces, not very sure about the opening of the insurance industry in Indiawhat the colour and character of that industry is going to be and all the time in a very expectant mood that something will happen in this country after all. That sort of a fear or should I say confusion is now totally replaced. I nd amongst you today qualied young professionals who have a cheerful disposition and who have a spring in their walk and who are determined to be great contributors to the professional life of an actuary. In fact I must say it openly that the profession of an actuary today in India is a well sought after profession. This is an area where the people would like to qualify themselves. As the opportunities available to them are many we nd a number of people joining this course and trying to better themselves and to better the insurance industry. This is a very signicant and a great development in the profession of actuarial science in this country. I was mentioning about the conversion of the ASI into the Institute of Actuaries of India. I was mentioning it to Mr. Liyaquat Khan before we moved in here, that one of my last jobs with IRDA prior to I left, was to appear before the parliamentary committee to support the Bill to convert the society into a chartered body. And many in the society did not feel very happy about the conversion. I was perhaps the only fellow who thought that a society as such may not command that much of an acceptance with the government as a chartered body will be. I always felt that openness and a transparency in a professional bodys dealings was always welcome. The other three chartered institutes that we have in this country do have public participation; they have nominees on their Councils, drawn from different sectors not necessarily from the government itself. And they have

been in a position to charter their path in a much better professional manner, than what they would have been if they were to function as societies. Well ladies and gentlemen these were my thoughts which compelled me to come to this function today, and as I said earlier I am very privileged to be here. I had noted down some points which I thought I will share them with you. By tradition, a typical key note address amongst professionals, on an occasion like this will survey the current professional landscape and identify the next steps to make the Indian Actuarial Profession more successful and acceptable. In keeping with this tradition, I would like to do a SWOT analysis on the Indian Actuarial Profession and then present my views on how to carry the profession forward. A good starting point for the SWOT analysis can be to look at some statistics. I will take 2000 as the year of the start because that is when the Indian insurance industry got broadened and the independent operators were admitted into the fold. If I were to take a ten years perspective I nd that the profession has grown phenomenally from about 750 members including student members to the present 12,000 or so. The primary driver of this growth has been mainly due to the increasing number of students who have joined the profession who have grown as I understand from about 600 to 11,400 today. It is a very good sign that the profession is being sought after, the profession is being populated by youthful members, who would be in a position to carry this profession to greater and greater heights in their times to come. If we look at the manifold increase of the number of students over the period, I think the growth in the Indian Actuarial Profession has been a great success story. Having said that I would also like to caution, that the very success could pose a risk and

we must not be complacent about the need to maintain the luster of the profession. Dealing with the strengths I would like to mention initially the phenomenall growth of the industry both in the life and the non- life sectors. In the rst decade of this century, a large numbers of insurers had set up business in this country. This number is likely to increase if the proposed equity structure of an insurance company undergoes a change in the near future. The large number of operators in the industry and the phenomenal growth that we have seen both in the life and the nonlife sectors in the last 10 years makes one to believe that this is a growth area, and considering the fact that the insurance density in this country is still not matching with the levels which have been reached even in the Asian region. The prospects of the growth in the industry and the players continues to be bright and if that were the situation at the industry level, then as the great participants in this growth and those who sustain this growth by their expert actions, the actuarial students as well as the actuaries do have a very bright future. As always the particular expertise of actuaries lies in evaluating long term nancial liabilities. Clearly the complex nature of the liabilities demands a high level of technical inputs and much of these have been the exclusive preserve of the actuarial profession, partly because of the regulatory requirements of the protection that the regulations offer to the appointed actuaries. However, we need to remember that the demand for actuarial services will also depend upon the availability of the complex long term nancial liabilities. It is possible that nancial companies and other nancial intermediaries can stop creating obligations that cannot be readily hedged. However, I would think that such a scenario is improbable because consumers are likely to always demand some form of a guarantee to be embedded

Indian Actuarial Profession Serving the Cause of Public Interest


The Actuary India March 2011

in the long term nancial contracts. Let us move over to the next one, Weaknesses and threats. It is probably difcult to talk about the weaknesses without talking about the threats. Hence I would like to address both, weaknesses and threats in the same breath. I see three emerging trends or risks for the profession. The rst of these is the commoditization, the second is potential laws of inuence and the third is the understanding gap. What I mean by commoditization is the increasing uniformity with which we are doing our calculations and not adequately using our unique skills of picking the right assumptions. The best example to illustrate this point will be to consider the employee benets area where actuaries are required to value liabilities using assumptions as specied by the employer and a discount rate which is clearly prescriptive. While I do concede that the commoditization is to a large extent is driven by regulators and accounting standards, the point is how do we address this issue. Well see about it a little later. The next risk which I would like to highlight is the potential loss of inuence both, with the regulators and the clients, including the employers. The questions are: are we doing enough to stake the trust of our regulatory stakeholders by demonstrating that we are driven by a strong force of public interest? Have we done surveys amongst the employers and other clients in our traditional and non-traditional areas to understand their requirements and perceptions? Are our technical skills and knowledge continuing to remain unchallenged? Are the employers comfortable with our business awareness and the communication skills? This brings me to a discussion about the third risk, the Understanding Gap. The Morris Review in the UK commented

on the understanding gap which exists between the users of actuarial services and the actuaries, and suggested that this can result in an insufcient challenge to actuarial advice. Let me assure you that this is not a phenomenon which is facing the actuarial profession alone. Today if you see around yourselves there seems to be a very distinct disconnect between market anticipation and professional service in all recognized professions whether it be the accounting profession, lawyers, doctors, engineers and others. The public seems to think justiably that once an expert has looked into a question that the answer delivered is the nal one and the correct one. But the situation exists today where the faith in the professional bodies has started to weaken because of various actions taken by let us say the government, the government departments. They question the certication of accounts or activities by professionals. I would not like to further elaborate on this. I think that this is a signicant issue for the profession which deserves a very serious consideration. The Morris review had recommended a two pronged solution to this problem. The rst recommendation was to impart better training and guidance for users of actuarial services. The second recommendation was that the Actuarial reports to be prepared in line with a Communication Standard to be developed by the Board of Actuarial Standards. While I do agree that additional training for users and standardization of reports can help, I am not completely persuaded that these actions alone will have the sufcient impact to close the understanding gap. The Actuaries also have a role to play in the process. I often hear the Actuaries being criticized as poor communicators. But I would think that it is not an entirely justied remark. The simple reason is the issues on which the Actuaries are trying to communicate do not lend themselves to

be reduced to a simple communication. A central part of communication by Actuaries lies in explaining the uncertainty inherent in their assumptions and calculations. Communicating uncertainty will complicate the message and the users need to be aware of this. However, Actuaries can and need to put more part of imagination into the way they can communicate their ndings. Graphics, heat maps and water fall charts are some such tools for facilitating communication with a nontechnical audience. I also think that as a rst step, the Actuaries can attempt to bridge this understanding gap with the auditors so that they together will be in a position to enable the Boards and the trustees of organizations to assimilate easily the results of actuarial analyses. Turning to opportunities, the theme of this conference most aptly describes the opportunities set for the Actuaries Emerging risks daring solutions. While I am one with you while you chose this very appropriate title for this conference, I feel that risks are bound to emerge as they are an inherent and integrated part of our life and its our duty to nd solutions to them. It is part of our daily life. But my only concern when I saw this was, whether you should call those solutions as daring. My perception of a solution would be that it will be an appropriate solution and it will be a long sustaining one. Some daring thoughts might derail us somewhere. So let us concentrate on nding solutions which are transparent, acceptable to the profession as well as to the users of the profession and will stand the test of time. The role of Actuaries in risk management is one of the most talked about topics in international actuarial circles. And a lot of effort has been devoted to positioning actuaries as the natural choice for senior risk management roles in the nancial services industry. It is heartening to note that a number of overseas actuarial 7

Indian Actuarial Profession Serving the Cause of Public Interest

The Actuary India March 2011

bodies have started providing training for actuaries aspiring to work in the area of Enterprise Risk Management [ERM]. These bodies have introduced ERM as an optional examination at the fellowship stage culminating into a certied risk qualication. I am also glad to note that the Indian actuarial profession has started putting more action behind this initiative. To my mind actuaries have many of the tools needed for the quantitative aspects of risk management. They, however, need to gain a better understanding of the strategic and operational risks and how to implement risk management practices and processes in an enterprise. It is also interesting to note that the regulators are being at the forefront driving the ERM initiative by insisting upon company specic risk based capital calculations along side the existing solvency reporting requirements. For example, the three pillared Solvency II framework is aimed at enabling insurance companies to nd out where the risks lie, how to measure these risks and to nd ways and means of managing or reducing these risks. I understand that the IRDA has also been actively promoting the economic capital framework amongst insurance companies by including economic capital calculations as a part of reporting requirements. Let me now turn to another opportunity for the Actuaries. In the earlier part of my statement I referred to the risk of commoditization in the context of valuation of liabilities. I also see that as an opportunity for Actuaries to focus more on the asset side where the action is .For those Actuaries, particularly the pension actuaries, who are prepared to build investment skills, there is a huge opportunity to advise on the overall asset strategy for insurance companies, pension funds, and employers sponsoring long term employee benet plans. Actuaries are in a unique position to advise on liability driven

investment strategies provided they can make that mental leap to become asset -liability management actuaries rather than remaining as liability actuaries. The Morris review had recommended a transition from the current practice of providing guidance notes to a Principles based approach for settling actuarial standards. As and when this transition happens and the technical guidance becomes more principle based then the role of actuaries in terms of their ability to exercise actuarial judgment will become important and will ensure a continuing demand for their services. Having covered the threats and opportunities facing the Indian actuarial position let me briey dwell on the way forward. I believe that among other things, the Indian actuarial profession must focus on the following aspects as part of the growth strategy in the future - Research and development, attracting talent, education, continuing professional development and engaging with stakeholders If Actuaries have to be successful in the face of greater competition, then the profession needs to work harder to have the best tools for their job. This will mean more research and the profession has to consider how this will be funded and researched. The Profession needs to identify issues of contemporary concern both in the Indian and global contexts and commission suitable research projects particularly the ones which promote application of actuarial tools and techniques in Wider Fields. I would also strongly encourage the Indian Actuarial Profession to remain as a strong and active participant in the international actuarial research initiatives so that we can benet considerably from the sharing of ideas and research with our counterparts. An example can be our active involvement in developing a principles based approach to setting actuarial standards.

On the question of attracting talent a survey commissioned by the UK Actuarial Profession in 2008 revealed that less than 2% of the brightest and the best mathematics students and graduates considered an actuarial career. While I am given to understand that the Indian Actuarial profession has been attracting some of the best minds from the IITs and the IIMs to join the profession as students, it is important to have an appropriate strategy in place to continue to attract our share of the brightest and the best. The attraction of an actuarial career to the mathematically minded graduates can be partly offset by the long travelling time it takes to qualify as a fellow actuary. This is where we need to think about packaging and promoting the Associateship qualication as an appropriate base for a career in various branches of nance and nancial services. The other key challenge in this context will be to ensure availability of appropriate career opportunities for the actuarial students both in India and abroad. This would call for some serious thinking on the part of the profession to make the skill sets of the students compatible worth the current and future requirements, particularly in a global context. In my vision I look for the day when the Indian actuarial students are sought after for international roles by the foreign partners of the Indian insurance companies. Turning to education, with regard to the education process, I would like to make two small suggestions related to the structure and means of delivery. Under the current structure, the students are required to take a mix of core and non-core actuarial papers as part of the core technical level. It is probably worthwhile to examine whether some of the subjects like statistics, economics and nance can be examined as part of the entry requirements into the profession so that the remaining core

Indian Actuarial Profession Serving the Cause of Public Interest


The Actuary India March 2011

actuarial papers can be beefed -up with more technical and application oriented content. My second suggestion relates to the mode of delivery. I think we should make more use of university based education and focus on broadening the range of actuarial science offerings in reputed educational institutions. I believe that there are signicant benets to be gained from teaching the core technical and application subjects at the reputed universities and other specialized academic institutions. While the probable reduction in the average qualication time can be a benet ,the other main benet is likely to be a better understanding of the key concepts resulting from face to face teaching and use of a wide range of pedagogic tools such as computer based modeling. Also the mathematical content of the current syllabus is a more demanding and students will probably need more help to understand. Of course the profession has to ensure that the standards are consistent across all these routes to qualication. On continuing professional devel opment, I would like to say that the importance of CPD has never been greater for practicing actuaries than now. Given the current environment, it is too obvious that actuaries who do not keep up to date are likely to nd themselves to be obsolete quite quickly. The profession has to continually review the minimum veriable CPD requirements for its members and probably raise the bar on the minimum level of the CPD from time to time. The profession must also experiment with new ways of delivering the CPD content in order to ensure maximum participation- webinar being one such means of delivery. Besides the CPD types of programmes, the profession must also seriously consider offering intensive short term courses which are needed for todays actuaries to renew and update their core skills.

On the question of engaging with stakeholders in the earlier part of my presentation I mentioned the need for building and sustaining constructive partnerships with the regulatory stakeholders and employers. I would like to add the third stakeholder here- the members of the profession. While in comparison with the others, this engagement seems easy, but it is not so in practice. It is vital for every profession to maintain a constant dialogue with its members and equally important to assess frequently whether we succeed in this mission. A useful starting point in this direction can be for the profession to develop and articulate its vision, mission and values of the profession which will provide the framework within which the constructive dialogue with its members can take place. In this address I have tried to cover a number of themes which can be of relevance to the Indian profession with varying degree of depth. I am convinced that the current users of the actuarial services-the regulators, the insurance companies and pension funds trustees- have a high degree of condence in the Indian actuarial profession and view the members of the profession as highly competent. I am also convinced that the demand for actuarial services is strong in the traditional domains and is likely to remain so in the near future. I am also equally convinced that there are nancial intermediaries and non- nancial entities outside the insurance and pension sector that need help from those who truly understand risks. They are not aware of actuaries as a potential source of help. I would like the Indian actuarial profession to take advantage of this opportunity and broaden the cause of serving public interest. While I was forming my thoughts on this, I suddenly thought of something which is happening in the Indian accounting

profession. Before I conclude I must give expression to a thought that crosses my mind - the adoption of international accounting and reporting standards. While such a move may be a welcome one in the background of globalization of enterprises, it needs to be examined whether a wholesale transformation from the existing system to the new one without noticing the local trends can be very useful. Development of markets is not uniform over the world. Practices followed by the profession also do not normally get standardized in different parts of the world. Such features deserve to be recognized. I see this global conference as an important step in the direction of globalizing the Indian actuarial profession and raising the level of awareness of this profession in the Indian nancial sector. I nd this conference characterized by a large participation from the international fraternity - a galaxy of eminent speakers and presenters and panelists drawn from within and outside the country. An array of actuarial topics of contemporary importance has been listed for the next two days for discussion. I am sure that interactions, deliberations, and presentations that will follow during these two days will strengthen the Indian profession and give a professionally enriching experience to all of us. Well, ladies and gentlemen, I wish the Indian Actuarial Profession great strengths and success in the years to come, the annual conferences to be populated by more and more professionals coming from within the country and also from outside India. I feel greatly enthralled and blessed to inaugurate this 13th Global Conference of Actuaries. Thank you, ladies and gentlemen. THANK YOU 9

Indian Actuarial Profession Serving the Cause of Public Interest

The Actuary India March 2011



risk adjustments incorporating diversication effects across portfolios; acquisition costs that relate to acquiring a portfolio rather than incremental to a contract; subsequent measurement residual margin; of the Working Group and at one of the FASB/ IASB Roundtables held in December. It will also be represented at the Working Group meeting to be held in March. The IAA continues to provide advice on this project, both to the IASB and to practicing actuaries, having prepared a research paper on risk margins and current estimates in 2009. During the course of the development of its comments regarding the IASBs Exposure Draft, the IAAs Committee on Insurance Accounting has also worked with the IAAs Member Associations, twelve of which also provided comments to the IASB, all of which are posted on the IASBs website ( under its Insurance Contracts project. To learn more about the work of the IAA on this topic, contact the IAA Secretariat care of the Chairperson of the Insurance Accounting Committee.

IAA February 10, 2011 The International Actuarial Association (IAA) continues to support the International Accounting Standards Boards (IASB) nancial reporting project to revise its International Financial Reporting Standard (IFRS) 4, Insurance Contracts. The IAA believes that a high quality global standard on the accounting for insurance contracts will be of benet to both insurers and the users of their published nancial statements. The IAA provided a comment letter on November 30 in response to the IASBs 2010 exposure draft on this project. In that letter, the IAA pointed out that, although the proposal included in the exposure draft is moving in the right direction, enhancements to several aspects of it are desirable, namely: including incorporation of a clearer and more consistent objective for

an economic approach to unbundling; a transition to the revised standard that treats currently in-force and new business in a consistent manner where practical.

In addition, the IAA indicated that it is in the process of developing implementation guidance to actuaries regarding the new standard, including a compilation of relevant techniques in developing discount rates and current estimates. The IAA has been represented at the November meeting of the IASBs Insurance

A. The annual subscription falls due on 1st April every year. The annual Subscription for the year 2011-12 falls due on 1st April 2011. The current Subscription rates are as under: Fee for Resident in India and members from SAARC countries (INR `) 2,000 1,000 500 Fee for resident in rest of the world (US $ ) 140 100 70

Class of Membership

Fellows/Afliates Associates Students

Indian Actuarial Profession Serving the Cause of Public Interest


The Actuary India March 2011



and internal management reporting of (1) insurance companies and (2) pension and employee benets obligations on the sponsor entity. It will also provide a number of case studies based on real life examples as performed globally by actuaries, insurance companies, and pension plan sponsors. This monograph forms an important part of the IAAs research and educational objectives, to facilitate and provide useful educational material that is accessible to actuaries everywhere. The project has been awarded to the rm of Milliman, Inc., an independent actuarial and consulting rm founded in 1947. This project has been made possible through the generous support of the following actuarial organizations:

IAA February 17, 2011 The IAA is pleased to announce the successful completion of a Request for Proposal to author an international educational monograph on the topic of issues associated with the determination of discount rates for nancial reporting purposes, scheduled for completion in September 2011. Determination of Discount Rates is clearly a key topic today and will continue to be well into the future. The use of discount rates applies to most actuarial calculations, including regulatory reporting, international nancial reporting, economic capital development, principles-based approaches to reserve and capital determination, fair value reporting for assets and liabilities, and enterprise risk management. The educational monograph will address concepts and practical methods that are being used in the application of the discounting process for the purpose of nancial reporting, capital assessment

Casualty Actuarial Society (United


Financial Reporting Section of the

Society of Actuaries (United States)

Institute of Actuaries of Australia


Institute and Faculty of Actuaries

(United Kingdom) In addition to their nancial support, these organizations have appointed representatives who will provide technical guidance and ongoing monitoring of the project as members of the ad hoc Project Oversight Group (APOG) created to oversee the project. Other members include the leadership of the IAA Committees on Enterprise and Financial Risk, Insurance Accounting and Pensions and Employee Benets. To learn more about the work of the IAA on this topic, contact the IAA Secretariat, care of the Chairperson of the APOG.

The Actuarial Foundation (United






the Actuary India is pleased to know that the paper titled Traditional Vs Market Consistent Product pricing submitted by Sanjeeb Kumar during 11th GCA has been selected by Society Of Actuaries, USA for their study material for the candidates taking the ILA exam.
Indian Actuarial Profession Serving the Cause of Public Interest

The Actuary India March 2011



throughout their careers. He also made clear the IFA`s wish to work in collaborative partnership with the IAI so that both could play their part in supporting actuaries in India and developing the profession`s inuence and strength. particular regulatory and professionalism issues faced by IFA members outside the UK. The IFA needed feedback from its members on what they needed and on how the existing support met those needs. He invited members of the audience to volunteer to be part of various focus groups to help this effort. Several members indicated that they would be willing to volunteer. Mr. Masters gave some practical examples of the challenges faced by individual actuaries and by the profession but reafrmed the IFA`s commitment to help its members meet those challenges.

Ronnie Bowie

Ronnie Bowie, President, and Nigel Masters, Immediate Past President were delighted to welcome 250 + members of the Institute and Faculty of Actuaries to an Open Forum in Mumbai on Monday 21st February 2011. The Forum was held during the 13th Global Conference of Actuaries and was attended by many distinguished guests including Mr. Liyaquat Khan, President of the IAI, Mr. Cecil Bykerk, President of the IAA and several other ofce bearers from actuarial associations round the world.

Mr. Bowie then presented diplomas to 5 new Fellows and recognised the achievement of Mr. Varun Gupta who had become one of the rst members to qualify for the Chartered Enterprise Risk Actuary (CERA) qualication. Mr. Bowie presented Mr. Gupta with a small memento of the achievement.

Mr. Masters then gave a presentation on 21st century Mr. Bowie opened the meeting by stressing the professionalism. He importance to the Institute and Faculty (IFA) emphasised that high Nigel Masters of its Indian members who represent a major standards of ethics were constituency within the overall total. The Council part of the actuary`s professional backbone of the IFA is debating its future strategy but and, in their own way, were as important as Mr. Bowie assured the audience that the new high technical standards. The Actuaries Code strategy would stress the IFA`s commitment to was a simple yet powerful code to guide us in its members outside the UK, providing them our professional lives. The IFA and the IAI were with excellent education and member support committed to promoting the highest standards of ethical behaviour and were working closely on the format of professionalism courses both for newly qualied and more experienced actuaries. The International Committee of the IFA`s professionalism Committee was also focusing on the Varun Gupta receiving memento from Ronnie Bowie for qualifying CERA

The meeting closed with a short reception during which members had the opportunity to meet Mr. Masters and Mr. Bowie and to discuss with them a wide range of issues. Mr. Bowie and Mr. Masters wish to record their thanks to the IAI and to its President Mr. Khan for the opportunity to hold this Forum during the GCA and for their hospitality and continued collaboration.

Ronnie Bowie President Institute and Faculty of Actuaries The Actuarial Profession, London

Indian Actuarial Profession Serving the Cause of Public Interest


The Actuary India March 2011


By Liyaquat Khan Hi Peter, Difcult to believe that in the next some days you will be off from India to your home in Great Britain. My memory goes back, more than 10 years back when for the rst time, on the sites of the Global Conference of Actuaries, probably it was the year 1999-2000, I saw a paper distributed by you titled something like Sinister Risks.I was impressed. That went into my mind. We didnt know each other then. In 2001 when you came to India to work, one of the rst few things that you did was to call me and introduce yourself. I was President of the Actuarial Society of India as the institute was called then. We met over dinner. Jainekar was with us. We discussed the visions and values of the professions that I was trying to build up. You instantaneously added you could contribute and were keen to do so to any extent that I felt was necessary. You became part of the Indian Actuarial Profession. I would like to recall quite a few things that you did. One was what is now called MMIC - Mortality and Morbidity Investigation Centre. We had initial difculties, in fact huge difculties, conict of interest between the profession and the Life Insurance Council. In the back ground, the job you did as a diplomat yes almost as a diplomat to have this settled, that enabled a few years down the line, the centre to be set up within the framework of the Institute of Actuaries of India. Other thing that occurs to me immediately is your contribution to the Actuaries India magazine as an editor. And of course how can I forgetwhen I was elected on 4th September as President of the Institute of Actuaries of India, just in two days time, you called me and said you wanted to meet. I said Ill come down to meet you but you insisted that you wanted to come and meet me. Well, I did suspect something of the slip that you had. We met and you offered to take partnership of what we now call 13th Global Conference of the Actuaries. I then requested you to take over the leadership of organizing the whole conference of actuaries, which you agreed to willingly. It has been a grand event Peter; Indian Actuaries Profession cannot forget your contribution. Though you will be going back to your home we expect you to be associated with us through the Actuary India magazine. Writing your memories and obviously about the 13th Global Conference of Actuaries that to a large extent has fullled my vision and the values around it, executed very ably under your leadership. I personally in the Indian Actuarial Profession wish you good luck in future, in whatever you want to do and also wish you a very peaceful and happy life. Farewell! A word that must be, and hath been - A sound which makes us linger; - yet farewell! (Lord Byron)

Thank you very much.

Indian Actuarial Profession Serving the Cause of Public Interest


The Actuary India March 2011

Peter Akers - An Incredible Journey

Peter Akers recently retired as the Chief Executive Ofcer of Munich Re India Services after being with the Company for nearly 4 years. He has been in the Insurance industry for over 35 years, starting his Actuarial career with the National Provident Institution (now part of AMP). He further went on to work with Canada Life and Abbey National and thereafter with KPMG as a Partner in their London ofces. He moved to India in 2001 to set up the insurance joint venture of Birla Sun Life and served as their CFO and Appointed Actuary. He was the Chief Operating Ofcer and part of the senior management team of Birla Sun Life before moving to another Sun Life venture in China for a short stint. He returned to India in 2007 to head Munich Re India Services, part of the leading Reinsurance group. Peter is a graduate with major in Mathematics/ Statistics and a Fellow of the Institute of Actuaries, UK and the Institute of Actuaries of India. He has been a member of the IAI Group on Life Insurance and the IAI Group on Communications. He also functioned as Chairman of Advisory group on Professional Affairs and Standards 2009. He was appointed as the Chairman of the Working Group on Pensions and Annuities set up by the IRDA in 2010 and also the Chairman of the Organizing Group for the IAIs Global Conference of Actuaries 2011. Peter Akers association with the Actuary India magazine: Following are the articles contributed by Peter Akers Article title Appointed Actuary Imminent Annuity Crisis Month & Year Dec-2002 Oct-2002

Reections on the rst three years in India Apr-2004 He was Country Reporter for China (Mainland) Month & Year October to December 2005 January to December 2006 January to December 2007 January to December 2008 January 2009 He also worked as Chief Editor for the magazine. Month & Year February to December 2009 January to December 2010 Peters passion includes football and following the fortunes of his favorite team Manchester United.

Indian Actuarial Profession Serving the Cause of Public Interest


The Actuary India March 2011



By Meenakshi Malhotra

The 13th Global Conference of Actuaries was held from 20th Feb to 22nd Feb 2011 in Mumbai and was organized by the Institute of Actuaries of India (IAI) in conjunction with the International Actuarial Association (IAA) and Health section of IAA (IAAHS). The conference was a unique endeavor that recognized the role of Actuaries in various elds. The overwhelming response that was received from the participants was commendable to be long cherished. More than 700 participants from all across the world attended the conference. This time the conference continued for three days instead of two. The speakers and the chairpersons from some twenty countries were invited for the global pool of leaders who shared their ideas on varied subjects. Out of 68 speakers, 45 were from other than India.

organized the events within GCA. He also congratulated 28 new fellows.

Peter Akers giving welcome speech

In the opening speech Mr. Liyaquat Khan -President IAI talked about toughness of actuarial examinations needed to be qualied to become Actuary and role of Actuary in the areas such as nance, social sector planning, investment, government health planning.

Liyaquat Khan giving best theme award to K Ganesan

The theme of Conference Emerging Risks Daring Solutions was an award winning entry of K Ganesan of LIC of India. The key themes covered at GCA include Enterprise Risk Management, Insurance Regulations, Solvency, Insurance accounting, Reinsurance solutions, Micro insurance and Takaful. There were 12 Sessions which were conducted on 21st and 22nd February. The Papers/Presentations can be downloaded from Institute of Actuaries of Indias website. A brief description is presented herewith:

N Rangachary giving key note address

Day1: Session 1: Inaugural Session

In the inaugural session, Mr. Peter Akers, Chairperson, 13th GCA Organising Group, welcomed presenters and participants and mentioned that this was the rst time other Actuarial bodies 16

The conference was inaugurated by former and the rst Chairman of IRDA, Mr. N. Rangachary who also delivered Key Note address. He urged the enthusiasts in Indian Actuarial profession to take advantage of the growing opportunities in the risk management eld He mentioned that actuaries are the natural choice for the Enterprise Risk Management (ERM) and institute should introduce ERM as one of the specialization subject in Actuarial examination. He also talked about the whole journey of Actuarial Society of India to Institute of Actuaries of India, right from the submission of Bill. Mr. Heerak Basu concluded the inaugural session by vote of thanks, after addresses by Cecil Bykerk President International Actuarial Association and Rudolf Lenhard of Munich Re.

Indian Actuarial Profession Serving the Cause of Public Interest

The Actuary India March 2011

Mr Brad Smith, Chairman, Milliman, spoke on counterparty risks and the challenges that they present. Various factors such as market movements, interest rates, ination rates, stock market volatility and performance of other sectors (other than the nancial sector) affect the counterparty risk. Re-insurers have a signicant counterparty risk on their balance sheets. Mr Rudolf Lenhard, Chief Executive, Munich Re Intnl Life-Re, discussed the model risks and the problems due to insufciency of data. He preferred to discuss a slightly modied GCA theme Known risks emerging Causes. The known risk in life insurance, as we all very well know, is due to the long term nature of the products and the guarantees envisaged. This feature is unique to life insurance and will remain so although there is a signicant shift towards Unit linked products wherein the investment risk gets shifted to the policyholders. There may be higher solvency requirements if there is signicant guarantee. The guarantee may also bite if the market enters a falling interest regime. Long term guarantees rely heavily on reliable statistical data. Re-insurers may be able to provide credible data covering the industry if the company has a backing of a re-insurer. Mr Bhargav Dasgupta, CEO, ICICI Lombard spoke on the effect of climate changes on crop insurance. He stated that many a time, it is difcult to predict a catastrophe, for example, the Australian oods, the Japanese earthquakes or the Indonesian Tsumani. Past data can never be used an indicator to the future, unlike in case of mortality. The penetration of crop insurance is only about 25% in the Indian Market. Also, there is no standard norm to decide the adequacy of catastrophe insurance. Mr Gautam Bhardwaj, IIEF discussed the linkages between insurance and pension reforms. He had set up the rst committee on pension reforms. He emphasized the need of mitigating longevity risks and the need to address the serious problems of old age and poverty. He said that over 90% of the Indian population do not have access to pension and rely on their life time savings during old age. Most countries are moving towards nation wide pension reforms. He further mentioned that since the long dated assets are not available, the matching of liabilities becomes very difcult. He said that there is a turn over of assets by approximately 5 times during the tenure of an annuity, due to the long period involved in its servicing. The pricing of annuity is still a big challenge in the market. Mr Esko Kivisaari, Vice Chair, IAA, Pension and Employee Benets Committee, also discussed challenges posed by annuity portfolio and touched upon the investment and ination risks involved. He pointed out that sufcient population studies have to be carried out to arrive at reliable conclusions. Mr Ralph Blanchard III President, CAS, USA deliberated on the concentrations of exposure of risk, followed by discussion of 17

Heerak Basu giving vote of thanks

Session 2: Global Round table

Ashvin Parekh chaired Global Round Table

The second session of the forenoon, chaired by Mr Ashvin Parekh, Partner and National Leader, Global Financial Services, Ernst and Young, was a Grand Round Table discussion of 14 eminent speakers consisting mainly of Chairpersons and CEOs of insurers, re-insurers and actuarial bodies. The topic of each speaker was contemporary and captivating. For an apt beginning, there was a discussion on the theme of 13th GCA viz., Emerging risks . Daring Solutions by Mr G N Bajpai, Ex-Chair, SEBI. He classied risks into three categories structural risk, systemic risk and operational risk. While the rst two are at a macro level being affected by the industry, the economy, the social and political environment etc., the third one is specic to the company. The company should be able to perceive the implications of the fusion of different risks and their consequent effects. The company should also identify potential areas of operational risk which may manifest into systemic risks, for instance, if there is heavy dependence on a particular distribution channel, then it is pertinent to note the consequences on the company of the failure of that channel. Finally, he emphasized that the company should not lose track of the macro level risks and should consciously assess and mitigate them.

Indian Actuarial Profession Serving the Cause of Public Interest

The Actuary India March 2011

Mr Ronnie Bowie, President, IFA on social unrest. Mr Cecil Bykerk, President, IAA, deliberated on the theme of GCA and also discussed several risks faced by insurers. Mr Mark Saunders reected on the reputation risk. He insisted on the need to address issues relating to consumers, investors and innovations. The need to build up the trust of the investment committee need not be emphasized more. The Round Table ended with a thanks note by the Chairperson, Mr Ashvin Parekh.

decreasing the return on capital. He stressed that the mispriced, unprotable products were the main reason for insolvency. He gave examples of the dominant products in the US market which misestimated policyholder behaviour and assumed lapsation of 3% to 8% during later durations whereas the actual lapsation turned out to be less than 0.5% thereby putting the companies in deep trouble. These products had low premiums and no cash values. He informed that in some products like long term care companies lost 8% of capital for every 1% extra assumed lapsation. Mr Gary Comerford who is the Global Chief Marketing ofcer of RGA Re spoke about Corporate Governance issues in the new context. He said that there is increasing complexity of Financial services around the world. 34 years ago simple Canadian model of four pillars was used. Banks knew what exactly to do. Today four pillars are gone. Liquidity, risk management, investments all aspects have melted together and clear delineation is not there. With the Globalisation of Markets there has been a evolution of Corporate Governance. Earlier there were no compliance ofcers. Misselling and other things were not serious enough. Now there are Corporate Governance Guidelines, rules where stipulations are more stringent creating lot of tension. Moreover there is a constant pressure to achieve revenue targets. We lose sight of the important question as to whether more revenue creates more value. He gave example of Pension Company which was operating in middle class segment. Because of Guarantees it went into huge troubles and was ned heavily. He suggested that we should not lose sight of the fact that we are in a noble industry providing protection. He asked the audience to think like CEO or COO of the company and then see whether the actions give direction, create value and are compliant with the regulations. The last speaker on the topic was Mr Ramnath Balasubramaniam. He mentioned that in US the market is slowly recovering though prot value creation is yet to reach the pre crisis level. Now Asia plus Japan has become the Global Insurance Powerhouse. There is heightened regulatory intervention. He further mentioned that the Return on Equity is under pressure and there is increased rating agencies pressure on the companies.

Session 3: Financial Markets: Managing Risk

Cecil Bykerk chaired the session on Financial Markets: Managing Risk

The session was chaired by Mr Cecil Bykerk IAA President The rst speaker was Mr Brad Smith, President Elect Society of Actuaries, USA. He spoke about the US Economic Crisis and its impact on Global Insurance Markets. He informed that the focus on reserves has been misguided. Very few companies in the past have gone insolvent because of lower reserves. Large or premature payment of dividend is also not the signicant cause of insolvency. After the crisis in 2008, there was a meeting of National Association of Insurance Commissioners of US. In the meeting he made a testimony that in the good times when everything is ne, reserving is ne but over reserving endangers the industry. During bad times though the companies are economically solvent but become insolvent on market value basis. He sited two main reasons for the crisis- Freezing Asset classes and the tendency of the Banks to put money in highly populist assets in pursuit of high yields. After his testimony two out of seven standards were liberalized in some states and in some other states two more standards were liberalized. After the crisis was over the Insurance Commissioners appreciated the insight provided to tide over the bad phase. He informed that too much capital requirement reduces the safety net and access to the capital market. It increases the base thereby 18

Session 4: Professionalism and Actuarial Education

This session was chaired by Ralph Blanchard III, President Casualty Actuarial Society, USA. Ronnie Bowie while discussing on Professions in the Society and Actuarial Education covered

Indian Actuarial Profession Serving the Cause of Public Interest

The Actuary India March 2011

the new principles based actuaries code and the continuous professional development. He also spoke on the future priorities viz. role of senior actuary, management of negligence risk, issues relating to the whistle blowing, ethics, public condence and public interest. Jon Thorne then discussed on the need of independent oversight of UKAP and how it works, the drivers of actuarial quality including the reliance and usefulness actuarial methods, communication, technical skills of Actuaries and the working environment. David Wilmot spoke on the issues relating to educating actuaries and optimization of actuaries by number or by quality?

the International Financial Reporting System (IFRS).Pillar I of Solvency II deals with the risk quantication, use of standard and internal models for risk and capital management, Pillar II sets out principles for internal control system and sound risk management and the Supervisory Review and Evaluation i.e. the Qualitative requirements. A brief on these viz. design considerations, construction of models, Own Risk and Solvency Assessment (ORSA) etc. was discussed by Toshihiro Kawano. He also discussed on the papers developed by IAA on Solvency and related issues viz. ERM for capital and solvency purposes.

Session 6: Takaful: Vision and Values

Ralph Blanchard III chaired the session on Professionalism and Actuarial Education

Session 5: Insurance Regulations & Solvency

Emile Stipp chaired the session Takaful: Vision and Values

This session was chaired by Mr. Emile Stipp, Chairperson-Health Section of International Actuarial Association. Mr Azim Mithani (CEO, Prudential BSN Takaful Berhad, Malaysia) gave the opening remarks on Takaful: Vision & Values, the Road ahead. He mentioned that Middle East countries & South East Asian countries form the current market for Takaful Insurance with Iran being the largest market. Although currently there is low penetration of Takaful Insurance but this market is growing rapidly and there is huge potential for further growth. The Malaysian market for Takaful Insurance is expected to grow manifold over next decade. He spoke on the concept of Takaful Insurance, the operation of various Takaful Models, the product portfolio, pricing procedure & the challenges ahead. The second speaker, Mr. Debo Ajayi, (MD& Consulting Actuary, Milliman, Dubai), spoke on Operational technical Issues in Takaful (Surplus Distribution, Solvency, Pricing, Decit funding, ROC). Takaful Insurance does not allow transfer of risk. Prot objective is met from investment prots, expense margin and underwriting surplus. Value for money is something that participants (policyholders) look for inspite of Takaful being Shariah compliant. Thus the takaful products are always compared with benchmark conventional products. 19

Peter Doyle chaired the session on Insurance Regulations & Solvency

Peter Doyle, President - Actuarial Society of South Africa chaired this session which covered in details about the Solvency and Regulatory issues engaging the insurance industry across the globe. Michel M. Dacorogna dwelt on the risk based market consistent solvency requirements with a specic focus on the process of implementation of Solvency II, the resulting Economic Balance Sheet, the available capital and the Solvency Capital requirement. Esko Kivisaari spoke on the scope of International Accounting Standards (IAS) and the ongoing issues linked with

Indian Actuarial Profession Serving the Cause of Public Interest

The Actuary India March 2011

The unique challenges faced are :-

Solvency because the risk is borne by operator only, Shariah Board Audit, Creation of risk fund for lapsed policies Investment (since only tangible assets are allowed) and Decit funding. To have in-place a Shariah compliant reinsurance

Regulator will ensure that the company has followed all the norms required to be fullled before going public. Estimation of Economic Capital and Embedded Value will pose challenges. A normal method of calculating Operational Risk will have to be worked out. Role of Valuation Actuaries will be very important. If the liabilities are underestimated or the assets are overestimated then there are real chances of spurious surplus emerging in the valuation exercise. Regulator would like to see that all the assumptions made in this respect are certied by an Independent Actuary. Detailed disclosures about capital structure, reinsurance arrangements, expense overruns will be required. Mr Yash J Ashar, a Capital Market Lawyer from Amar Chand Mangal Das, mentioned that the Capital market is risky. Our Companies Act allows Board of Directors to use the services of experts. For example in a company operating in Oil and Gas sector, experts will be able to estimate and inform the Board as to how much Oil is expected to be there below the soil. Similarly in case of an insurance company role of this expert is played by Actuaries. Actuaries will be required to estimate and explain the Embedded Value of a company and also the concerns as well as risks so that the investors are aware of the issues in the Industry. Indian issues now attract the overseas Institutional Investors too . Hence, there are challenges like increase in the FDI limit. Without this the chances of IPO happening in the future are remote He informed that there are issues like identication of promoters, interplay of regulators like SEBI and IRDA, Quarterly reporting requirements, objects of the issue, Qualied Institutional Placement (QIP) requirement. Capital markets regulator discourages the use of projections whereas without projections Embedded Value and future NB forecasts will not be calculated. Companies would like to use the IPO proceeds to expand whereas the regulator would like them to use it for solvency purposes. Dr. R. Kannan informed that there are three sub-committees working on IPO matters and one of the issues under consideration is the denition of promoters.

Session 7: Round Table: Indian Insurers going public

Mr Ashvin Parekh initiated the discussion on the issue. He mentioned that it has been ten years since the sector was liberalized and there are now issues engaging our minds like increase in FDI in insurance sector from 26% to 49%. The quantity of paper that will be available in the market on Indian Insurers going public will be to the tune of Rs.60,000 crore. The big questions is , is market ready to absorb such a huge supply? Dr R. Kannan, Member IRDA, informed that the Regulator is interested in ensuring that all the important facts and information is available to the prospective investors in a timely and accurate manner. Regulator will not be interested in determining whether a price X or Y is correct. It will be according to the market based principles. He said that the insurance companies initially estimated that they will start earning prots from 6th year onwards, however, it did not happen. During the rst 3-4 years the business growth was much more than projected. Companies estimated that this high growth trend will continue and large amount of money was invested in infrastructure and human resources resulting into high set up costs and expense overruns. Then there was high churning of people from one company to the other thereby increasing the training costs. All these factors delayed the achievement of breakeven point. Currently only 3-4 companies have reached the breakeven stage and all other companies are yet to see the prot. In this backdrop when the companies go public they will be interested in telling the public what risk management practices that the co follow. How their business is sustainable and protable? A lot of disclosures with full transparency will be required to instill condence in the minds of prospective investors. Policyholders will be interested in whether the company be able to meet its liabilities post IPO. Since no company is going to lose AUM post IPO Policyholders would like to see the existing Guarantees plus reasonable increases in Bonuses. 20

Day 2: Session 8: Insurance Supervision for Solvency

The insurance supervision for solvency session was chaired by Dr. R Kannan, Member Actuary, IRDA Mr. Ramon Calderon, Chairperson, IAIS, solvency and actuarial issues subcommittee, made a presentation on the IAIS perspective on solvency supervision. He emphasized on how regulators can use solvency

Indian Actuarial Profession Serving the Cause of Public Interest

The Actuary India March 2011

II development in regulating the solvency of companies in their respective territories.

not about reducing the premiums. They are complex products where underwriting is not easy. He also stated that since Micro Insurance prots take long to evolve it would be helpful to get some to help with aspects like infrastructure etc.

Ramon Calderon gave a presentation on the IAIS perspective on solvency supervision

Session 9: Insurance Accounting

Ronnie Bowie chaired the session on Micro Insurance

Government subsidy and NGOs could help in selling the products. He mentioned that a lot of research is to be done with regards to type of products that can be sold and relating data needs to be collected. Mr. Luis Huerta, CEO of Eka Seguros, Past president of IAA, spoke about the Micro Insurance market in Latin America. He elaborated on the lifestyle, culture and the customer needs of the region. He touched upon the products sold in this region. Mr. Denis Garand, President Denis Garand and Associated spoke on the ten key performance indicators for Microinsurers. The ratios look at the growth rates, penetration, renewals, expense ratios, claims and service quality. These should be analysed within the country and also with other countries. Trends should be looked at and the indicators should be combined, linked and analysed. The ratios such as Claims ratios are indicators of whether the product is viable for the insurance company and whether it is value for money for the customer. He also stated that Micro Insurance could be viable by having a Reinsurer, however rst there is a need to manage the product well and only then others will be willing to participate. Mr. Frank Mclnerney, General Manager Gen Re Singapore spoke on Micro insurance: the Actuarial Contribution. He said that Micro Insurance should be seen as a commercial opportunity and not as a Social program. Micro Finance companies give loans to individuals and Micro Insurance is taken to repay the loans in case of his death. The targets for Micro Insurance was the middle and lower income groups and the insurers should take necessary steps to reduce Moral hazard. Including the spouses of the loanees would drastically increase the cost of insurance. Some of the basic risks of the product can be countered by having suicide clause. 21

Nigel Masters chaired the session on Insurance Accounting

This session was chaired by Mr. Nigel Masters, immediate Past President of the IFA. Mr. Ralph Blanchard III, President CAS, USA shared the information on ongoing projects in non life area in IASB. Mr. Hans Van Der Veen, Financial Accounting Advisory Services - Ernst &Young, made presentation on the insurance contract related work going on in IASB. Third presentation in this session was made by Mr. Sanket Kawatkar, Head of Life Insurance, Milliman India on the IFRS 4 Draft. He highlighted various issues that insurance companies may face in implementation of the IFRS 4.

Session 10: Micro Insurance

The session was chaired by Mr. Ronnie Bowie, President IFA. Mr. Dirk Reinhard, Vice Chairman, Munich Re Foundation spoke about the Current trends and future opportunities in Micro Insurance. He said that it was a growing market with a lot of untapped potential and that micro insurance was simply

Indian Actuarial Profession Serving the Cause of Public Interest

The Actuary India March 2011

Session 11: Enterprise and Financial Risks

Session 12: Concurrent Sessions: C1: Health & Care Insurance C1. 1: Health Insurance: Pricing & Wellness Programmes
The rst part of the session was Stochastic modeling concept & application for high deductible pricing by Mr. Biresh Giri. This part started with the general issues on the stochastic modeling approach and considered separately for short term & long term contracts. Discussions were made to identify the variables which are suitable to be modeled stochastically for both the types. The concerned areas of application may also provide guidance towards this (eg. regulatory requirement, pricing level etc.). Various available alternatives like stress / scenario testing, static factors (PAD, MAD etc.) were discussed with their advantages & disadvantages. He mentioned that the main aspect in the modeling is the process of assigning an appropriate distribution to the parameters to be modeled stochastically. It was agreed that although sometimes a good t may be achieved for the past values, it still needs considerable considerations including the possible future trends before applying it. It was also stated that in the circumstances where a good t of distribution can not be obtained, we may consider the empirical distribution with sufcient cautions. The second part of the session Health insurance & wellness program by Mr. Emile Stipp was started with the objective to nd whether there is any correlation that exists between the wellness programs & health insurance claims and if so to what extent. For this purpose a case study of South Africa was presented which offers considerable discounts in premium rates if some specic measures towards the wellness program are adopted. The results were considered after eliminating the aberrations due to selection effects and the cost vs. benet outputs were analyzed. It was revealed that in spite of the considerable costs involved, the benet level was substantially higher than it. Due to the additional ad advantages of social benets and the above, it was concluded that benet is higher than cost if it is designed suitably. C1. 2: Health Insurance: Governance, Product Performance Monitoring The session was chaired by V. Subramaniam, HeadUnderwriting and ReinsuranceSBI General Insurance Co. Lawrence Tsui, Director and Senior Products ActuaryLife & Health in AsiaPacic RegionSwiss Re, spoke on the topic

Brad Smith chaired the session Enterprise and Financial Risks The session started with the speech of Mr. Brad Smith, President Elect, who was the chairperson for this session. Mr. Esko Kivisaari, delivered his speech on Enterprise Risk Management on the topic of Pensions. He highlighted various risks a pension fund faces. He also discussed how ERM helps a rm in managing the long term capital.. Mr. James Creedon, Director Risk Consulting and Software delivered a speech on Solvency II Own Risk and Solvency Assessment (ORSA). He described how ORSA, which is a part of Solvency II regime helps a rm to manage Enterprise Risk. He also discussed how ORSA is the core of any nancial business and it forces the company to think about its business in a consolidated risk management environment. The third round was on the subject importance of a robust ERM. Mr. Martin Sarjeant, Head of Department of iWork Prophet, SunGard, spoke on importance of robust ERM framework. He described it as a very useful tool in reducing the complexity and manage risks through operational transformation. He also highlighted how a robust ERM system allows a rm to actively manage, understand, control and mitigate the risks which in turn give increased security and return to policyholders. He also spoke about various utilities of Actuarial Software. The last presentation in this session was titled Economic Capital and Solvency II. Mr. Pradip Tapadar, made a presentation on this subject. He said that the concept of Economic Capital provides a consistent nancial risk management approach which provides uniformity across the nancial services industry. He also described The Economic Capital as amount of capital required to ensure that, over a specied time period, market consistent balance sheet of a rm remains solvent with a prescribed probability. He also presented a case study that described the relationship between EC and outstanding term of policies. .

Indian Actuarial Profession Serving the Cause of Public Interest


The Actuary India March 2011

Healthcare and the Governments in Asia. He spoke about the impact of governments objective and action with regard to health care provisions in the country, subsidy provided for health care etc. on the health insurance industry and types of health insurance products. His presentation was specic to Asian countries. Samuel Tan, Senior Manager (Actuarial & Underwriting Services), Munich Health, Singapore, spoke on the topic Health Insurance product performance monitoring and rate reversion. He spoke about the purpose of portfolio monitoring, data requirement for various type of analysis and use of various analyses for redesigning of the product features and rewording the terms and conditions. C 1.3: Round Table: Impact of Legislative & Regulatory changes on Health Insurance The session was chaired by Mr. Anuj Gulati, CEO Religare Health Insurance. Dr Bhabatosh Mishra, VP underwriting and products, Apollo Munich Health Insurance, spoke about important facets of Health Care. He discussed the need for Health Regulator and the progress that was being made in this direction. He also discussed about the impact of regulation and regulatory body on consumers, costs, controls, quality etc. Mr. Sanjay Datta, Head Customer Services, ICICI Lombard (Health and Motors), spoke about the need for structured data and problems in getting it and learnings from abroad on how to store, code and transfer data. He discussed how health Insurance has evolved over a period in India. He also spoke about the need to bring down the loss ratio. Mr. Richard Kipp provided an International perspective to the topic of discussion. He discussed the impact of regulations on various stakeholders. He spoke about the way health legislation is framed in U.S. and the role of working group of experts and involvement of Industry people in these groups. He also suggested that India could pick up from the US experience to address the current issues like portability, changes in pre-existing conditions etc and the potential impact of these changes on health business.. In the end Mr. Anuj Gulati spoke about the aspects of collaboration of Insurance companies with the regulator and also collaboration among the Insurers to tackle the key issues. C2: Pension, Employee Benets & SS C2.1: This was a Round Table discussion chaired by Mr. Gautam Bhardwaj, MD-IIEF. The discussion was initiated by the Chair with leading questions on the subject matter and elicited the opinion of the participants. The question centered around mainly on the future role of actuaries in Pension, Employee & Social Security in India. Following the establishment of PFRDA & introduction NPS (DC Scheme)

In integrating the various pension programs which are at present fragmented Developing innovating pension products in a DC Set-up. Mr. K. Subrahmanyam, Chairperson Advisory Group on PEB & SS, IAI, in his response, highlighted various benets, projects of the Government in India for the benet of organised and unorganized sector, increasing nancial burden due to unfunded approach and emphasized on the urgent need of bringing all employee retirement benets under one umbrella. Mr Merette, CEO Asia Pacic Aon Hewitt, focused on the danger of the nancial burden of social security leading to bankrupt of several nations. He emphasized the need for simplicity in designing the pension product especially when it is delivered to weaker sections. He also underlined the importance of consistency, collaboration at policy levels and the need to avoid excessive regulation. Mr Kivisaari, Vice Chair IAA Pension & Employee Benets Committee, was of the opinion that the present problems of DB was due to faulty product design and cautioned the profession not to repeat the same in a DC Set-up. His opinion was that actuaries have a critical role to play in de-accumulation phase and educating the consumer in taking right decision C2.2 This session was chaired by Mr. A. D. Gupta, Vice President Institute of Actuaries of India. In this session, Mr. Gautam Bhardwaj, MD - IIEF, made a presentation on the challenges of old age income security in developing countries. Mr. A. Viswanathan, Central Provident Fund Commissioner (Retired) Advisor, gave a presentation of various statutory benets in South Asian Countries including India, which are available only to organized sector . The presentation of Mr. Kulin Patel, Head Benets - Towers Watson, provided an interesting insight into the trend of Retirement Benets in Asia Pacic countries and preferences of employees in choosing the benets. The survey results presented by him indicated medical benets as the most preferred benet choice followed by retirement benet regular income. C2.3 The nal session was chaired by Mr. J. S. Salunkhe, Senior Actuary and Advisor Mercer India. In this session, Mr. Edouard Merette, CEO Asia Pacic Aon Hewitt, dealt on the evolution of Retirement Risks in the 21st Century. He identied the social risks that are likely to emerge

Indian Actuarial Profession Serving the Cause of Public Interest


The Actuary India March 2011

during the century and the need for developing a comprehensive solution to have social harmony. Dr Avinash Chander, Technical Director ICAI, while delivering his speech on IFRS & Beyond explained the views of ICAI on Convergence (rather adoption) of IFRS from April, 2011 The areas in which they disagree with IFRS. He dealt in detail not only on the need for adoption for Indian industry but also on the challenges likely to be faced by all professionals including actuaries. Development of AS 19 (similar to IAS-19), treatment of actuarial gains and losses in AOCL are some of the changes Accounting Profession is initiating for convergence in IFRS. There was a lively discussion on the measuring interest rate guarantee for accounting purpose (DB or DC). While participating in the discussion, IAI President Mr. Liyaquat Khan, reminded the members of the professional guidance issued by IAI which places the responsibility only on the sponsoring employer. The session provided an opportunity for the participants to identify the various issues relating to the employee and SS benets, role of actuaries in evolving solutions. C3: Life Insurance Life insurance section consisted of following three presentations: A round table chaired by Mr. Mark Saunders, Risk Consulting Practice leader, Towers Watson and dealt Indian Life Insurance-Successes, failures and the way forward A session chaired by Dr. Avijit Chatterjee, Chief Actuary, ICICI Prudential Life insurance and dealt two subjects- the rst one being International developments in risk management, product manufacturing and innovation and M&A What is the right price? Some food for thought A session chaired by Mr. Richard Holloway for The evolution of life insurance products in India way forward The 60 minutes round table with experienced speakers from Industry Mr. Sandeep Bakhshi, Mr. Andrew Cartwright, Mr. Nigel Masters and Mr. Amitabh Chaudhary covered the subject with following six key question raised by Mr. Mark to members: Biggest success and failure of life insurance industry of India Main issues related to customer management and services The role player matrix and responsibilities in insurance companies Disclosure of information- its relevance and importance

Actions required to develop India as a global insurance market Advise to actuarial fraternity Next one hour witnessed two most relevant issues of times under presentation, which were broad and comprehensive. Mr. Gary Finkelstein presented International Developments in risk Management-Product Manufacturing and Innovation and Merger & Acquisition what is the right price by Mr. Mark Saunders. The later part of the session was nourished by Dr. Kannan creating waves of introspection and insight. The context of the topic the evolution of life insurance products in India way forward has been most relevant to the 13th GCA at times when regulators judicious ngers are present on Unit linked products in multiple times and many insurers struggling to keep a rm foot. The thought provoking question as What can be the criteria for judging a best governance award for the insurer? taken all to agree the simplest and deepest answer as an insurer offering best return in the market on their products with all regulatory compliance. The challenging task of achieving best returns has been encountered by the market volatility existed during the last three years which lead to investors experiencing disappointment and dissatisfaction. The struggle by the investing public to identify a suitable product has been never ending. Mr. R. Kannan, said that during post-ULIP era, statistics is conclusive that the traditional products have far less sold than UL products, which means, investors may loose their condence in the insurance products as a short or long term viable option for reasonable returns. Major milestones of regulatory changes from Pre-ULIP to Post-ULIP and to Cap-on-Charges and nally to Discontinuance of Policy need to be looked at by keeping the grim situations of market and customers in view. The regulations has created an environment which can regain the condence of investors and best governance by the insurers which can take the insurance market to healthy growth and long term sustainability. The concern by the insurers over 4.5% minimum guarantee for pension products has been encountered by a question as if the guarantee is beyond a common mans expectations, do we really buy such products with a feeling of adequacy or recommend to our near or dear ones?. It indeed gives an answer to the guarantee concerns. He further stressed that the way ahead is survival of ttest who need to excel on the following factors leading to good governance: Research & Development Products matching customers demands Value added services

Indian Actuarial Profession Serving the Cause of Public Interest


The Actuary India March 2011

Customer care & education Transparency and disclosure which is adequate and comprehensive Understanding operational risk Image building- external agency rating Session C4: General Insurance Session C4.1 The Concurrent session on general insurance was divided into 3 parts. First was a round table talk on Global reserving practices. This session was Chaired by Mr. Vikas Newatia of Towers Watson with speakers including Mr. Charles Cicci the P&C Actuarial Lead of Deloitte Consulting, Chicago, Mr. Miranjit Mukherjee the CFO of Tata AIG General Insurance and Mr. Ron Kozlowski who leads All Asia General Insurance at Towers Watson. Both Ron and Charles spoke about various reserving methodologies and briey touched on some related issues. Mr. Mukherjee explained the impact that reserving would have on the nancial statements of the company. The second sub session was chaired by Mr. R R Belle, CEO SBI General Insurance Co. Ltd and Mr. Ron Kozlowski and Mr. Charles Cicci both spoke in the rst session. Ron gave a presentation on the Commercial Lines pricing of small and Large Fire risks. He described various rating factors that are required for pricing. Charles spoke about the current reserving practices in India and how they may be improved. The last sub session was chaired by Mr Yogesh Lohia - Chairman GIC. Mr. Klaus Peter Mangold the Chief Actuary, Allianz P&C, Germany spoke about aspects of P&C retail pricing. He discussed various steps involved in P&C pricing including the data aspects, various models and the possible conicts that may arise. The last speaker of this concurrent session was Joydeep Roy the CEO of L& T General Insurance who spoke about the benets and challenges of setting up a non-life company in India. His talk was primarily based on his personal experience at L&T General.

Toshihiro Kawano chaired the session on Insurance Markets Reinsurance Solutions

The Next Speaker was Paul Murray Managing Director Life and Health Asia, Swiss Re, made his presentation on the idea that longevity is not a risk to the Insurance/ Pension industry alone but is a risk to the whole of mankind and in the same league as risks like Global warming. Mr Andres Webersinke the Head of International Life/Health Research and Development at Gen Re talked on Evidence Based underwriting and his principal aim was to encourage actuaries to get involved in certain aspects of Underwriting especially in the development of an Underwriting system. He mentioned how Underwriting has now become a eld where a lot of data mining and Analytics is required and suggested that actuaries are in the best position to contribute in this space. The last session was Dieter Kroll who is the General Manager Hannover Life Re International. In his talk he spoke about the mechanism of Pension Buy outs in the UK and how this can be facilitated by a third party like a Special Purpose Vehicle.

By Meenakshi Malhotra along with P.K.Arora, A.K. Srivastava, Manoj Kumar, K.Ganesan, Neeraj Gupta, N.Kalpana, S.Sarkar, Chitra.S, A.K.S.Kushwaha, Sangita Pange, Alap Mehra & Vinodkumar K.

Session 13 Insurance Markets Reinsurance Solutions

This was the last session of the 13thGCA chaired by Toshihiro Kawano. The speakers spoke mainly about the emerging risks of the 21st century instead of conventional reinsurance solutions. Gavin Maistry, Chief Pricing Actuary, Life Asia of Munich Re made presentation on Longevity & the Implications for the Insurance Industry . Mr Maistry spoke of the economic impact of underestimating longevity and the challenges we face in the future as a result of an aging population. An Interesting part of his presentation was about a Geneticist who says that by 2049, likely expectancy of humans would be 500 years.

Meenakshi Malhotra


Indian Actuarial Profession Serving the Cause of Public Interest

The Actuary India March 2011



Edition News Covered Print Coverage

Sr. Date No 1 2 3 4 5 6 7 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23-Feb-11 25-Feb-11 22-Feb-11 22-Feb-11 23-Feb-11 23-Feb-11 24-Feb-11 22-Feb-11 23-Feb-11 23-Feb-11 23-Feb-11 23-Feb-11 23-Feb-11 23-Feb-11 23-Feb-11 23-Feb-11 17-Feb-11 17-Feb-11 17-Feb-11 22-Feb-11 22-Feb-11 22-Feb-11 22-Feb-11 23-Feb-11 23-Feb-11 23-Feb-11 23-Feb-11 23-Feb-11 23-Feb-11


The Times Of India Business Standard Business Standard The Economic Times The Economic Times Business Standard Business Standard Times Of India Business Standard Press Trust of India The Economic Times Business Standard Business Standard Afternoon India Everyday Breaking News India Worldnews IBN Live Financial Hub

Bangalore All Editions All Editions All Editions All Editions All Editions All Editions Online Online Online Online Online Online Online Online Online Online Online Online Online Online Online Online Online Online Online Online Online Online

Not keen on IPO now: ICICI Prudential Life Insurance Company L&T General Insurance plans new products IRDA wants life insurance to face 10% stake cap IRDA to unveil New Norms on Unit - linked Pension Products ICICI Prudential Life Insurance Company Not keen on IPO Live Longer, Pay more: Gross premium income of general insurers rises 38% 13th Global Conference of Actuaries held in Mumbai ICICI Prudential well capitalized, not keen on IPO At the 13th GC A, organized by IAI Not keen on IPO now: ICICI Prudential Life Insurance Company ICICI Prudential not keen on IPO now: CEO Bakhshi Not keen on IPO now: ICICI Pru Not keen on IPO now: ICICI Pru Not keen on IPO now: ICICI Prudential ICICI Pru not keen on IPO now 13th Global Actuaries' Summit Begins on Monday 13th Global Actuaries' Summit Begins on Monday 13th Global Actuaries' Summit begins on Monday IRDA to unveil new norms on unit-linked pension products IRDA wants life insurers to face 10% stake sale cap More options in unit-linked pension plans coming soon Insurance M&A norms to be out in 2-3 months: IRDA Not keen on IPO now: ICICI Prudential Not keen on IPO now: ICICI Prudential Not keen on IPO now: ICICI Pru Not keen on IPO now: ICICI Pru ICICI Prudential not keen on IPO now: Not keen on IPO now: ICICI Pru

Online Coverage

Indian Actuarial Profession Serving the Cause of Public Interest


The Actuary India March 2011

23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47

23-Feb-11 23-Feb-11 21-Feb-11 21-Feb-11 21-Feb-11 21-Feb-11 21-Feb-11 21-Feb-11 21-Feb-11 22-Feb-11 21-Feb-11 21-Feb-11 21-Feb-11 21-Feb-11 21-Feb-11 21-Feb-11 21-Feb-11 21-Feb-11 21-Feb-11 21-Feb-11 21-Feb-11 21-Feb-11 21-Feb-11 18-Feb-11 21-Feb-11

C Daily MoneyC / MyDigitalFC .com

Online Online Online Online Online Online Online Online Online Online Online Online Online Online Online Online Online Online Online Online Online Online Online Online Online

Not keen on IPO now: ICICI Prudential Not keen on IPO now: ICICI Prudential Insurance M&A norms to be out in 2-3 months: IRDA Insurance M&A norms to be out in 2-3 months: IRDA Insurance M&A norms to be out in 2-3 months: IRDA Insurance M&A norms to be out in 2-3 months: IRDA Insurance M&A norms to be out in 2-3 months: IRDA Insurance M&A norms to be out in 2-3 months: Kannan Insurance M&A norms to be out in 2-3 months: IRDA M&A guidelines for Insurance to be out in 2-3 months: IRDA Insurance M&A norms to be out in 2-3 months: IRDA Insurance M&A norms to be out in 2-3 months: Kannan M&A guidelines for Insurance to be out in 2-3 months: IRDA Insurance M&A norms to be out in 2-3 months: IRDA Insurance M&A norms to be out in 2-3 months: IRDA Insurance M&A norms to be out in 2-3 months: IRDA Insurance M&A norms to be out in 2-3 months: IRDA Insurance M&A norms to be out in 2-3 months: IRDA Insurance M&A norms to be out soon Insurance M&A norms to be out in 2-3 months: Kannan Insurance M&A norms to be out in 2-3 months: Kannan Insurance M&A norms to be out in 2-3 months: IRDA Insurance M&A norms to be out in 2-3 months: IRDA Insurance M&A norms to be out in 2-3 months: IRDA Insurance M&A norms to be out in 2-3 months: IRDA IRDA will come out with guidelines for IPOs for insurers in the next 15-20 days while

48 49 50 51 52 1 2

22-Feb-11 21-Feb-11 21-Feb-11 21-Feb-11 22-Feb-11 24-Feb-11 23-Feb-11

Financial NDTV TV9

Online Online Online Online

Norms on mergers and acquisitions will be unveiled over next 2-3 months Insurance M&A norms to be out in 2-3 months: IRDA Insurance M&A norms to be out in 2-3 months: IRDA Insurance M&A norms to be out in 2-3 months: IRDA IPO, M&A norms soon, says IRDA India's Budget Mumbai News

C Online

Electronic Coverage

Indian Actuarial Profession Serving the Cause of Public Interest


The Actuary India March 2011

Puzzle No 149: A teacher wrote the number 139,257 on the blackboard and asked the class to write the number in base 8. One student noticed that the answer, 417,771 is three times the rst number if both numbers are considered to be in base 10. What are the lowest and highest numbers (in base 10) to have this property? Puzzle No 150: Almost all whole numbers can be expressed as the sum of no more than eight positive cubes. For example, the number 121 needs only six: 121 = 4^3 + 3^3 + 3^3 + 1^3 + 1^3 + 1^3 Remarkably, there are just two exceptions to this rule. The rst is 23, which needs nine positive cubes ( 2^3 + 2^3 + 1^3 +1^3 + 1^3 + 1^3 + 1^3 + 1^3 + 1^3) , and the second is 239, which also needs nine positive cubes, but which can be solved in two different ways. What are they? Solutions to Puzzles: Puzzle No 145: There were 13 games where the player that threw rst won the game. Therefore there were 25 13 = 12 games where the player that went rst ended up losing.

The order of the play for next game changes when a player that went rst loses the game. From the given information it follows that Alvin would have thrown rst had there been a 26th game. Alvin must therefore have won the 25th game and the tournament. Puzzle No 146: For the price to be mathematically equitable, the students would each pay $20 to Rendrag for a total of $40. Rendrags portion for this part of the trip is also $20. Correct solutions were received from: Puzzle No 145: 1. Mayur Godse 3. Saurabh Bharangi 5. Gayatri Jayaraman Puzzle No 146: 1. Ankit Gupta 2. Y. Bhanuprakash 3. Gayatri Jayaraman 2. Divesh Garg 4. S. Raghu

Shilpa Mainekar

The Funny Actuary

A man walks into the actuarial department of an insurance company and sees three actuarial students busily involved in the center of the room. One is holding a long board upright; the second is steadying a chair on a desk upon which the third student is balanced. The third student has one end of a tape measure and the rst student has the other. The intruder asks, What in the world are you doing? The actuarial students answer, Were trying to measure this board. The intruder says, Why not lay it down on the oor and measure it? The students answer, We already know how long it is, now we want to see how tall it is.

I have become my own version of an optimist. If I cant make it through one door, Ill go through another door - or Ill make a door. Something terric will come no matter how dark the present.. - Rabindranath Tagore


Many Happy Returns of the Day

the Actuary India wishes many more years of healthy life to the following fellow members whose Birthday fall in February 2011 March 2011 Batliwala, Minoo R. Krishnan, S. Chadha, R. C. Mehta, H. C. Chidambar, G. JOSHI S. F.

(Birthday greetings to fellow members who have attained 60 years of age)

Indian Actuarial Profession Serving the Cause of Public Interest


Getty Images


Prot & Losses 2009
Gross written premiums Net earned premiums Investment income (gross of expenses) Operating income Net income
in millions

SCOR ratings
AM Best: A - Stable outlook Fitch: A - Positive outlook Moodys: A2 - Positive outlook S&P: A - Positive outlook (10/09/10) (24/08/10) (07/10/10) (01/10/10)

6,379 5,763 503 372 370

SCOR is the 5th largest reinsurer in the world, practicing a traditional and cautious business approach combined with conservative financial management. SCORS business strategy is based on a tripleengine approach, its engines consisting of SCOR Global P&C, SCOR Global Life and SCOR Global Investments, as well as on strong sectorial and geographical diversification. SCOR provides its clients with cutting-edge technical services throughout the world in order to meet their security expectations.