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Mr. Warise Rajesh Bablya Jaiwanti Roll No. 18 Masters in Financial Management
ACKNOWLEDGMENT
One of the pleasant aspects of preparing the project is the opportunity to thank those who have made the project completion possible. I am grateful to my guide Prof. Jayadeep Manjeshwar for his valuable support, professional advice, sustained interest, invaluable help and guidance from the identification stage till the end. I would also like to extend my gratitude to the faculty, library staff for equipping me basics which helped me throughout in the making of the project. My Special thanks to the Director. Vidya Hattangadi and course coordinator, Prof. Lukman, for their invaluable contribution and help during the study of the project. And finally, I would like to place on record, my sincere thanks to everyone who has directly or indirectly been helpful in the successful completion of the project.
STUDENTS DECLARATION
I Rajesh Bablya Warise, the student of Allana Institute of Management Studies of Masters in Financial Management (MFM) program, Semester 5 of the University of Mumbai of 2009 2011 batch, hereby declare that this report entitled Actuary has been carried out by me during this semester as per the norms prescribed by the University of Mumbai, and the same work has not been copied from any source directly without acknowledging for the part/ section that has been adopted from published/ non-published works. I further declare that the information presented in this project is true and original to the best of my knowledge.
CERTIFICATE
I, Prof. Jayadeep Manjeshwar hereby certify that in the Third Year of the Masters in Financial Management (MFM), batch 2009-11 at the Allana Institute of Management Studies, has completed the project on Actuary under my guidance, as per the norms prescribed by the University of Mumbai, in the academic year 2009-11. I further certify that the information presented in this project is true and original to the best of my knowledge and belief.
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Particulars
Introduction What is an Actuary? The Role and Responsibilities of an actuary Specific Duties of an Actuary Traits which all Actuaries should possess What is Insurance ? Eligibility The Actuarial Society of India Role of Actuaries in Insurance Appointed Actuaries Cessation of appointment of appointed Actuary Powers of appointed Actuary Duties and Obligations Absolute Privilege of appointed Actuary Growth Rate New Avenues Driving Force
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18. Job Prospects and Career Options 19. Remuneration 20 Conclusion 21Masters Bibliography in 22 Books Reference
Financial Managem ent 5
Most people will know something about the professions of accountants, doctors and lawyers. But tell someone youre an actuary and more than likely they will look at you blankly never having heard of an actuary. The reason for taking this topic is to make everyone aware of work of actuaries, which is most important in Insurance Company. An actuary really plays an important role in Insurance. He deals with the business of insurance and is responsible for many areas under the broad category of insurance. He is responsible for collecting the data to forecast future risks and see how the predictions will affect various aspects of insurance. Actuaries also hold a legal responsibility for protecting the benefits promised by insurance companies. Traditionally actuaries have been associated with insurance sector but in present scenario with the economy opening up actuaries are needed in sectors like non-life insurance, employee benefits, health insurance, assetmanagement, reinsurance, insurance broking houses and consulting companies.
INTRODUCTION
Now a days, most of us must have seen, heard and read about companies which provide insurance cover to policy holders in case of any eventuality like accidents, hospitalization, household hazards, thefts or death and still others who look after investment schemes, employee benefits, retirement benefits and pension schemes. The policy holders are required to pay a fixed amount as installments at regular intervals and they get this money back in the event of any untoward incident or upon the maturity of the policy. Have you ever wondered who decides as to what amount of money a policy holder should pay as premium or what sum should be given as pension amount or returns by the company? Well, this exactly is what an actuary does. They calculate insurance risks and premiums. Technically speaking the job of an actuary is to assess the financial impact of an uncertain future event. Roughly speaking they look at the financial aspect of disasters; sarcastically speaking they are financial astrologers. An actuary has to combine the skills of a statistician, economist and financier and employ techniques of probability, compound interest, law, marketing, management etc to predict the outcome of future contingencies and design solutions to lessen the financial severity of such events. Actuarial profession was formally established in 1848, with the formation of Institute of Actuaries, London. In India, traditionally actuaries were found only in the life-insurance sector but now with the opening up of the economy they are wanted by non-life insurance companies, banks, stock exchanges, private and government agencies and this are one field where demand exceeds supply.
The Actuarial Society of India (ASI), the only professional body of Actuaries in India was formed in 1944 and was admitted as a member of the International Actuarial Association (IAA), an umbrella organization to all actuarial bodies across the world, in 1979. It was registered in 1982 under registration of Literacy, Scientific and Charitable Societies Act XIII of 1960. Its objectives include the advancement of Actuarial profession in India, providing opportunities for interaction among members of the profession, facilitating research, arranging lectures on relevant subjects and providing facilities and Guidance to those studying for the professional Actuarial Examination. The Institute of Actuaries Of India (IAI or formally ASI) was initially started as a non-examining body when Actuaries used to get qualified from Institute of Actuaries or Faculty of Actuaries of UK. The Institute of Actuaries of India started conducting Entrance Examinations in India for students of Institute of Actuaries, UK, in 1975. In 1989, it started conducting examinations for its Indian qualification up to Associate ship level, and in 1992, it started conducting Fellowship level exams. The IAI has been following the UK pattern of examinations since November 2000 with an eye to be a part of global standards set by the International Actuarial Association (IAA). To become an actuary one must be a Fellow of a recognized professional examining body like the Actuarial Society of India (ASI), Mumbai or the Institute of Actuaries, London. The work of an actuary involves a lot of number crunching and the nature of work is quite tedious, nevertheless it offers rewards in terms of intellectual challenge, status, job satisfaction and earnings. As their judgment is the basis of decision making for many business activities, their career paths often lead to upper management and executive positions. Masters in Financial Managem ent 8
WHAT IS AN ACTUARY?
Most people will know something about the professions of accountants, doctors and lawyers. But tell someone youre an actuary and more than likely they will look at you blankly never having heard of an actuary. If, however, they are aware of the work that actuaries do, they are likely to be impressed; being an actuary carries quite a reputation. This is partly due to the difficult exams, but mostly due to the fact that actuaries are experts in a field that is renowned for its complexity and mathematical prowess. An actuary deals with the business of insurance and is responsible for many areas under the broad category of insurance. The actuary is an individual who will analyze important data such as mortality, sickness, injury and disability rates and use that information to aid those involved with insurance. An actuary is responsible for collecting the data to forecast future risks and see how these predictions will affect various aspects of insurance. Any person with minimum 18 years of age and having a high degree of aptitude for mathematics and statistics can take up the course and become an Actuary. A person with a high degree of aptitude for mathematics and statistics can become an actuary. The other necessary skills include good communication skills, ability to use computers and related technology, business sense, a practical outlook, a curious bent of mind, the ability to work on ones own and also be a Masters in Financial Managem ent 9
One who fulfills the role of an actuary may also have to testify before public agencies with regard to new or revised legislation affecting the companies and corporations, which it works for. This frequently occurs when a new law is about
to be passed or the company wishes a particular piece of legislation to become law. The actuary is also the go to individual for any questions relating to their job responsibilities asked by the customers of the company. If the questions are best answered by the actuary, and then he/she will do so in order to present straightforward information to the public. An actuary must also develop mathematical ideas and formulas so that the proper data can be assessed. The actuary must use his/her mathematical abilities to format equations, which will aid in the resolution of an issue.
An actuary should also have good working computer skills. Since much of their work will involve computers, it is important that the actuary not only be familiar with computers but know how to maneuver around with them as well. Comprehension skills are also a necessary component for all actuaries to possess. The actuary is an individual who in their job role will need to analyze and interpret often-complex documents and laws as well. If one has excellent comprehension skills they will be able to do their job that much better.
We face a lot of risks in our daily lives. Some of these lead to financial losses. Insurance is a way of protecting against these financial losses. For a payment (premium), an insurance company will take the responsibility of compensating your financial losses.
Insurance other than Life Insurance falls under the category of General Insurance. General Insurance comprises of insurance of property against fire, burglary etc, personal insurance such as Accident and Health Insurance, and liability insurance which covers legal liabilities. There are also other covers such as Errors and Omissions insurance for professionals, credit insurance etc. Non-life insurance companies have products that cover property against Fire and allied perils, flood storm and inundation, earthquake and so on. There are products that cover property against burglary, theft etc. The nonlife companies also offer policies covering machinery against breakdown,there are policies that cover the hull of ships and so on. A Marine Cargo policy covers goods in transit including by sea, air and road. Further, insurance of motor vehicles against damages and theft forms a major chunk of non-life insurance business. Masters in Financial Managem ent 16
In respect of insurance of property, it is important that the cover is taken for the actual value of the property to avoid being imposed a penalty should there be a claim. Where a property is undervalued for the purposes of insurance, the insured will have to bear a rateable proportion of the loss. For instance if the value of a property is Rs.100 and it is insured for Rs.50/-, in the event of a loss to the extent of say Rs.50/-, the maximum claim amount payable would be Rs.25/- ( 50% of the loss being borne by the insured for underinsuring the property by 50% ). This concept is quite often not understood by most insureds. Personal insurance covers include policies for Accident, Health etc. Products offering Personal Accident cover are benefit policies. Health insurance covers offered by non-life insurers are mainly hospitalization covers either on reimbursement or cashless basis. The cashless service is offered through Third Party Administrators who have arrangements with various service providers, i.e., hospitals. The Third Party Administrators also provide service for reimbursement claims. Sometimes the insurers themselves process reimbursement claims.
Accident and health insurance policies are available for individuals as well as groups. A group could be a group of employees of an organization or holders of credit cards or deposit holders in a bank etc. Normally when a group is covered, insurers offer group discounts.
There are general insurance products that are in the nature of package policies offering a combination of the covers mentioned above. For instance, there are package policies available for householders, shop keepers and also for professionals such as doctors, chartered accountants etc. Apart from offering standard covers, insurers also offer customized or tailormade ones. Suitable general Insurance covers are necessary for every family. It is important to protect ones property, which one might have acquired from ones hard earned income. A loss or damage to ones property can leave one shattered. Losses created by catastrophes such as the tsunami, earthquakes, cyclones etc have left many homeless and penniless. Such losses can be devastating but insurance could help mitigate them. Property can be covered, so also the people against Personal Accident. A Health Insurance policy can provide financial relief to a person undergoing medical treatment whether due to a disease or an injury.
One of the main reasons one should insure is to protect ones belongings and assets against financial loss. When one has earned and accumulated property, protecting it is prudent. The law also requires us to be insured against some liabilities. That is, in case we should cause a loss to another person, that person is entitled to compensation. To ensure that we can afford to pay that compensation, the law requires us to buy liability insurance so that the responsibility of paying the compensation is transferred to an insurance company.
Anyone who owns an asset can buy insurance to protect it against losses due to fire or theft and so on. Each one of us can insure our and our dependents health and well being through hospitalisation and personal accident policies. To buy a policy the person should be the one who will bear financial losses if they occur. This is called insurable interest.
The amount you insure for is called the sum assured. Normally a policy should cover the value of the asset either the market value while insuring, or the cost of replacing the asset should it be lost or destroyed. The premium will depend on the sum assured.
Can I take two policies and get claims under both of them?
In case of an indemnity cover (one that seeks to compensate the actual loss )--for instance, a policy that covers property, if there are two policies in vogue, the loss shall be shared by both the policies. In no case can an insured get more than the actual pecuniary loss he or she has incurred. On the other hand, in respect of benefit policies like the Personal Accident policy, where a fixed compensation is paid, no matter what the actual loss is , one may obtain more than one policy.
In indemnity policies, the upper limit of a claim is the sum assured and this usually applies for the period of the policy. Certain policies, however, allow for reinstatement of the Sum Insured by payment of proportionate premium for the remaining period of the policy. The actual claim will be the actual extent of financial loss as validated by documents like bills. If the property is underinsured, the insured shall bear a rateable proportion of the loss. There can be more than one claim in the policy period but the sum assured is usually the limit for the policy period unless reinstated.
Nowadays health insurance policies which cover hospitalisation costs have also a cashless settlement of claims. That is, you dont have to pay for the treatment at the hospital and then make a claim for reimbursement of the expenses. The insurance company has a service provider called the third party administrator (TPA) health services, who liaises with the hospitals and directly makes the payment for your treatment as per the terms of your policy and coverage.
Negative underwriting factors cost you money. We commissioned this study to determine exactly how much. If you are not able to change your factors to save some money, at least you will know what they are costing you!
Underwriting Factor
Total cholesterol = 285 Cholesterol ratio = 7.0 Blood pressure = 141/90 Weight = 210 Family member diagnosed before 60
(heart or cancer)
Company 2 3 3 7 1 6 2 5 6 7 2 3
Premium $1,330 $ 730 $1,530 $ 835 $1,285 $ 890 $1,330 $ 815 $1,290 $ 715 $1,330 $ 730
First you should write to the company and give them sufficient time to respond suitably. If they dont respond, or it is not a response satisfactory to you, then you can approach the appropriate judicial channel. For complaints relating to personal insurance covers upto a value of Rs.20 lakh, you may approach the Insurance Ombudsman in your area.
ELIGIBILITY
The Actuarial Society of India and Institute of Actuaries, UK are professional examining bodies which conduct certificate, associate ship level and fellowship level examinations and on passing these examinations candidates become eligible to be admitted as an Associate Member of the society and can use AASI against their name as a registered actuary. On passing all the subjects up to and including 400 Series and upon satisfying the other criteria specified for the purpose, candidates become eligible to be admitted as fellow member of the Society and can use FASI against his/her name as a recognized fellow. A number of universities are offering graduate and postgraduate courses in actuarial sciences. Mere completion of such courses does not make one eligible to practice as an actuary, but such courses give students better conceptual clarity and training by experts in a classroom environment which makes them better equipped than if they directly write papers of ASI through self study. To qualify as an Actuary, a candidate has to pass all examinations in the prescribed subjects conducted by the professional examining body such as the Actuarial Society of India and the Institute of Actuaries, UK.
Objects
To provide a central Organization for the members of the actuarial profession in India for the purpose of elevating the attainment and status and for promoting the general efficiency of all who are engaged in occupations connected with the pursuits of an actuary;
To extend and improve the data and methods of the Science which has its origin in the application of the doctrine of probabilities to the affairs of life and to consider all monetary questions involving, separately or in combination, the mathematical doctrine of probabilities and the principles of interest;
To plan, promote and provide for interaction amongst the members, to arrange facilities for the reading of papers, the delivery of lectures, the discussion of topics and for the acquisition and dissemination by other means of useful information and knowledge connected with Actuarial
To promote or to conduct work or research of interest to Actuarial Science or to the practice of the Actuary;
To prescribe syllabus of studies and hold examinations in subjects pertaining to principles and practice of Actuarial Science with particular reference to Indian conditions, by means of which the attainment of adequate standard can be tested and to award certificates, diplomas and other distinctions to successful candidates;
To provide educational services and other facilities to those studying for actuarial examinations;
To disseminate information on Actuarial Science and other allied subjects by undertaking and providing for publication of journals, reports, pamphlets, research papers, books and other literature;
To form and maintain either by itself or in collaboration with some other Organization or organizations a library or libraries for use by members of the Society;
To confer honorary awards and other distinctions; To institute and award scholarships, prizes, medals and certificates;
To maintain liaison with Universities and other educational and professional bodies in India or abroad for the purpose of promoting the objects of the Society;
To maintain contact and co-operate with other institutions in any part of the world having objects wholly or partly similar to those of the Society including by way of payment of subscription, enrollment as a member thereof, and generally in such a manner as may be conducive to the furtherance of the common objects as the Society may deem necessary;
To discuss and comment on the actuarial aspects of public, social and economic and financial questions which from time to time may be the subject of public interest;
To consider the actuarial aspects of legislation, existing and proposed, and to take such action as is considered desirable;
To arrange for the compilation and publication of statistical data and of actuarial tables based thereon;
To raise funds by subscription from the members of the Society and to accept donations and bequests for all or any of the purposes of the Society; and
Generally do all such things as from time to time may be necessary to elevate the status and procure advancement of the interest of the profession.
APPOINTED ACTUARIES:
Procedure for Appointment of an Appointed Actuary: 1) An insurer registered to carry on insurance business in India shall, subject to sub-regulation, appoint an actuary, who shall be known as the 'Appointed Actuary' for the purposes of the Act. 2) A person shall be eligible to be appointed as an appointed actuary for an insurer, if he or she shall be-----(i) ordinarily resident in India; (ii) a Fellow Member of the Actuarial Society of India; (iii) an employee of the life insurer, in case of life insurance business; (iv) an employee of the insurer or a consulting actuary, in case of general insurance business; Masters in Financial Managem ent 32
(ii) to comply with the provisions of section 21 of the Act in regard to further information required by the Authority; (iii) to comply with the provisions of section 40-B of the Act in regard to the bases of premium; Masters in Financial Managem ent 37
(i) informing the Authority in writing of his or her opinion, within a reasonable time, whether,-(i) the insurer has contravened the Act or any other Acts; Masters in Financial Managem ent 38
GROWTH RATE
According to R. Kannan, president, Actuarial Society of India, the opening up of the insurance sector in the country has pushed up the demand for qualified and senior actuarial students. "About 2,000 candidates enroll with the ASI as students every year. But the total number of actuaries available in India is only about 225. Of these there are just 40 people in the 20-60 age group," says Kannan. "On the other hand, each of the 15 life insurance and 15 non-life insurance companies needs at least two to three qualified actuaries." While there is no concrete forecast on what the demand for actuaries will be, E Balaji, COO, Ma Foi Management Consultants, a human resource consulting and recruitment firm that signed up about 40 actuaries for a single BPO client in end2005, says that there is generally a 20-25 per cent shortfall in supply. R Krishnamurthy, managing director (distribution consulting), Watson Wyatt Insurance Consulting, agrees that insurance liberalisation has exposed a big gap in the demand and supply ratio of actuaries. "When the Life Insurance Corporation of India was the monopoly player and general insurance was subject to a tariff regime, opportunities were limited and there was no incentive to qualify as actuaries," he says. "Now there is a demand for freshly qualified actuaries, especially in the employee benefit sector. Till now, this sector was largely handled by chartered accountants, but changes will call for professional actuarial valuation." At the moment, qualified actuaries find the going good. Consider Anil Singh, 37. He started out as an actuarial trainee with LIC in 1991, soon after completing his Master's in Statistics from Lucknow University. While working with LIC, he Masters in Financial Managem ent 41
NEW AVENUES
Low supply, high demand: There are only 225 actuaries in India. Industry feels there is 20-25% shortfall. Larger profile: Apart from the traditional areas of life and general insurance, pension and reinsurance, actuaries now act as consultants, investment advisers and risk managers as well. Hands on: ASI fellowships can be completed in 5-6 years' time. Actuarial studies can be pursued alongside a full-time job. Money magic: With about 6 years of experience, a fellowship and work at a senior position, you can earn Rs 50 lakh a year.
DRIVING FORCE
The growth in the Indian financial market is the major reason for the spurt in the demand for actuaries. Apart from the traditional areas of life and general insurance, pension and reinsurance, actuaries are now needed to play the roles of consultants, investment advisers and risk managers as well. A number of banks are planning joint ventures to set up insurance companies in 2007, which is likely to raise the number of life insurance companies from 16 to more than 20. The number of general insurance companies is also expected to increase from 12 to around 15. The health insurance sector is also expected to get a big dose of growth. V Jaganathan, managing director of Star Health Insurance, says there is huge potential for the sector in a populous country like India. Apollo Hospital, for instance, is close to establishing a health insurance company. Reforms in pension funds, whenever they happen, are also expected to add to the demand. India has the potential to emerge as a key actuarial back office in the BPO sector as well. A few companies are already in the business of low-level calculations. Once the supply pool expands, India can take up more complex and more lucrative back office work, says Krishnamurthy.
3. Birla Sun Life (Distributor Co Ltd); 4. Aviva Life Insurance Co Ltd.; 5. HDFC Standard Life Insurance Co Ltd.; 6. ICICI Prudential Life Insurance Co Ltd.; 7. ING Vysya Life insurance Co Ltd; 8. Om Kotak Mahindra Life Insurance Co Ltd.; 9. Max New York Life Insurance Co Ltd.; 10. Met Life Insurance Co Ltd.; 11. SBI Life Insurance Co LTD; 12. TATA AIG Life Insurance Co Ltd; 13. Life Insurance Corporation of India Non-Life Insurance 1. Bajaj Allianz; 2. HDFC Chhub GIC ltd; 3. ICICI Lombard General Insurance Co Ltd; 4. IFFCO-TOKIO General Insurance Co Ltd.; 5. Reliance GIF; 6. Royal Sundaram GIC; 7. Cholamandalam GIC; 8. TATA AIG; 9. Oriental Insurance; Masters in Financial Managem ent 46
Actuarial Apprentices with LIC The Life Insurance Corporation of India takes in candidates who are Graduates/ Postgraduates with Mathematics and Statistics as main subjects with 60% or more marks in aggregate and coming in the age-group 18-25 years. The selection is based on a written test conducted by LIC which consists of two papers. Paper I includes Essay Writing (Hindi or English) and paper II comprising of Mathematics or Statistics or Actuarial Science. Candidates who have passed one or more examination of the ASI or Institute of Actuaries (London) or those having PG Diploma in Actuarial Science with more than 50% marks in aggregate are exempted from appearing for the exams.
REMUNERATION
If you can survive the grilling tests, there is a payoff - the median annual salary for an actuary is handsome. Actuaries are globally in demand and can command hefty pay packets, salaries and perks. No wonder then that this profession has been rated among the best jobs in the US. In India the trend is slowly picking up. Stipend for an actuarial trainee per month in India is around Rs 25,000 per month. Insurance companies and consulting firms give merit to experience and qualifications with salary packets ranging from 8 lacs per annum for beginners to around 40 lacs per annum for those in senior positions. In UK a qualified actuary can earn 20 lacs per annum.
CONCLUSION
An actuary is an individual who has many duties and responsibilities concomitant to their position. If one in this job role has excellent analytical, comprehension, mathematical and public speaking skills, they will most likely be individuals who excel at their job and produce the highest quality work product possible. If one has all of these aforementioned skills, the position of actuary may be the perfect one to fill. An actuary is the technical expert on life insurance matters studying the mortality of the insuring public, evaluating the financial condition of the insurer, determining the policies to be offered and the premium to be charged, determining the policies to follow in underwriting an investments of its funds, deciding on the bonus that can be declared on the participating policies and so on. A good actuary is a good economist, a good statistician and a good security analyst. Masters in Financial Managem ent 49
BIBLIOGRAPHY
www.actuary.org www.actuariesindia.org www.webindia123.com www.irdaindia.org www.actuariesindia.org/ - Cached - Similar insuranceactuarial.com/actuary-careers-path.php - Cached - Similar www.actuary.com/actuarial-discussion.../content.php?...Actuarial...Path - Cached - Similar www.theactuary.com/actuary/.../microinsurance-mongolia-nomadic-path Cached - Similar Masters in Financial Managem ent 50
BOOKS:
IRDA: IC33 LIFE INSURANCE Principles of Insurance Practice of Life Assurance Practice of General Insurance Regulations of Insurance Business Life Assurance Underwriting Health Insurance Masters in Financial Managem ent 52