Role of Actuary in Insurance PDF

Role Of Actuaries In Insurance
EXECUTIVE SUMMARY
Most people will know something about the professions of accountants, doctors and lawyers. But
tell someone you’re 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, asset-management, reinsurance, insurance broking houses
and consulting companies.
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RESEARCH METHODOLOGY
Objectives of the research:
 To get detailed knowledge about Actuarial Science
 To analyze the growth of Actuaries and predicting the future of role of actuaries
 To understand the basic role of actuaries in insurance industry
 To study the different areas of focus of actuaries
Primary Data:
Primary data was collected from Finstat Academy – actuarial science coaching classes of total 50
students studying actuarial science. Primary Data includes respondents of majorly students of 18
– 22 age group.
Limitations of the Research:
The drawback of the research was basically not getting more number of respondents for the
primary data. Hence the survey results may be biased because of the survey being majorly filled
by a particular age group.
Scope of the Research:
The scope of the research is to find out the different aspects and areas of work of an actuary. More than
800 actuaries are needed in India but at present only approximate 250 are there. There is a lot of scope in
actuary all over the world. The whole of insurance and risk portfolio is covered by actuaries nowadays.
Without an actuary insurance companies cannot even make policies.
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INTRODUCTION
Today, only one business, which affects all walks of life, is insurance business. That’s
why insurance industry occupies a very important place among financial services operative in the
world. Owing to growing complexity of life, trade and commerce, individuals as well as business
firms are turning to insurance to manage various risks. Therefore a proper knowledge of what
insurance is and what purpose does it serve to individual or an organization is therefore
necessary.
The Indian insurance sector has 52 insurance companies, of which 28 are in non-life
insurance business and 24 in life insurance. India's life insurance sector is the biggest in the
world with about 36 crore policies and is expected to increase at a compound annual growth rate
(CAGR) of 12-15 per cent over the next five years. The insurance industry plans to hike
penetration levels to five per cent by 2020, and could top the US$ 1 trillion mark in the next
seven years. This bright outlook for the sector is primarily due to the Government of India's
efforts to strengthen the industry. For instance, the Union Cabinet in July 2014 approved a
proposal to relax foreign direct investment (FDI) limit in the domestic insurance sector to 49 per
cent from the previous 26 per cent, signaling the Centre's intent to bring capital and investment
into the sector.
Insurance has been under public sector for over four decades. Life Insurance was
nationalized in 1956 and by merging 245 private insurance companies LIC of India was formed.
The earliest transaction of insurance as practiced today can be traced back to the 14th century
AD. The business of insurance started with marine business by Traders who used to gather in the
Lloyd’s coffee house in London, wherein they had agreed to insure their ships in transit. The 1st
Life Insurance Policy was issued on 18th June, 1583, on the life of William Gibbons for a
period of 12 months.
Life Insurance in its current form came in India from the UK, with the establishment of
British firm, Oriental Life insurance Company, in 1818. The 1st Indian insurance company
was the Bombay Mutual Assurance Society Ltd, formed in 1870. By the year 1956, when the
life insurance business was nationalized and the Life Insurance Corporation Of India ltd
(LIC) was formed on 1st September, 1956 and there were 245 companies existing at that time in
India.
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Similarly after nationalization of General Insurance in 1972, General Insurance

Corporation (GIC) was formed by merging 106 private insurance companies. GIC has four
subsidiary companies called
(i) Oriental Insurance
(ii) United India Insurance
(iii) New India Assurance and
(iv) National Insurance.
Now all the four companies have been independent companies. GIC now transects reinsurance
business in General and Life Insurance.
The Primary legislation that deals with insurance business in India is Insurance Act, 1938
and Insurance Regulatory and Development Authority (I.R.D.A) Act 1999. The need for
insurance is felt in the Indian Public. This has been sought to be achieved by a definitive action
by setting up a process of insurance reforms with the passage of I.R.D.A Act 1999.
‘The future is never certain’. So it’s rightly said, “AN INSURANCE POLICY IN HAND
KEEPS THE TENSION AWAY.”
Insurance, essentially, is an arrangement where the losses experienced by a few are
extended over several who are exposed to similar risks. Insurance is a protection against
financial losses arising on the happening of an unexpected event. Insurance companies collect
premium to provide security for the purpose. In simple words it is spreading of risks amongst
many people.
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DEVELOPMENT & GROWTH OF THE INSURANCE INDUSTRY IN

INDIA
The concept of insurance has been prevalent in India since ancient times amongst Hindus.
Overseas traders practiced a system of marine insurance. The joint family system, peculiar t o
India, was a method of social insurance of every member of the family on his life. The law
relating to insurance has gradually developed, undergoing several phases from nationalization of
the insurance industry to the recent reforms permitting entry of private players and foreign
investment in the insurance industry. The Constitution of India is federal in nature in as much
there is division of powers between the Centre and the States. Insurance is included in the Union
List, w herein the subjects included in this list are of the exclusive legislative competence of the
Centre. The Central Legislature is empowered to regulate the insurance industry in India and
hence the law in this regard is uniform throughout the territories of India. The development and
growth of the insurance industry in India has gone through three distinct stages.
1. Formation of the Insurance Industry in India:
Insurance law in India had its origins in the United Kingdom with the establishment of a British
firm, the Oriental Life Insurance Company in 1818 in Calcutta, followed by the Bombay Life
Assurance Company in 1823, the Madras Equitable Life Insurance Society in 1829 and the
Oriental Life Assurance Company in 1874. However, till the establishment of the Bombay
Mutual Life Assurance Society in 1871, Indians were charged an extra premium of up to 20% as
compared to the British. The first statutory measure in India to regulate the life insurance
business was in 1912 with the passing of the Indian Life Assurance Companies Act, 1912 (“Act
of 1912”) (which was based on the English Act of 1909). Other classes of insurance business
were left out of the scope of the Act of 1912, as such kinds of insurance were still in rudimentary
form and legislative controls were not considered necessary. General insurance on the other hand
also has its origins in the United Kingdom. The first general insurance company Triton Insurance
Company Ltd. was promoted in 1850 by British nationals in Calcutta. The first general insurance
company established by an Indian was Indian Mercantile Insurance Company Ltd. in Bombay in
1907. Eventually, with the growth of fire, accident and marine insurance, the need was felt to
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bring such kinds of insurance within t he purview of the Act of 1912. While there were a number
of attempts to introduce such legislation over the years, non-life insurance was finally regulated
in 1938 through the passing of the Insurance Act, 1938 (“Act of 1938”). The Act of 1938 along
with various amendments over the years continues till date to be the 1 definitive piece of
legislation on insurance and controls both life insurance and general insurance. General
insurance, in turn, has been defined to include “fire insurance business”, “marine insurance 3 4
business” and “miscellaneous insurance business”, whether singly or in combination with any of
them.
2. Nationalization of the Insurance Business in India:
On January 19, 1956, the management of life insurance business of two hundred and forty y five
Indian and foreign insurers and provident societies then operating in India was taken over by the
Central Government. The Life Insurance Corporation (“LIC”) was formed in Sept ember 1956
by the Life Insurance Corporation Act, 1956 (“LIC Act”) which granted LIC the exclusive
privilege to conduct life insurance business in India. However, an exception was made in the
case of any company; firm or persons intending to carry on life insurance business in India in
respect of the lives of “persons ordinarily resident outside India” provided the approval of the
Central Government was obtained. The exception was however not absolute and a curious
prohibition existed. Such company, firm or person would not be permitted to insure the life of
any “person ordinarily resident outside India”, during any period of their temporary residence in
India. However, the LIC Act, 1956 left outside its purview the Post Office Life Insurance Fund,
any Family Pension Scheme framed under the Coal Mines Provident Fund, Family Pension and
Bonus Schemes Act, 1948 or the Employees' Provident Funds and the Family Pension Fund Act,
1952. The general insurance business was also nationalized with effect from January 1, 1973,
through the introduction of the General Insurance Business (Nationalization) Act, 1972 (“GIC
Act”). Under the provisions of the GIC Act, the shares of the existing Indian general insurance
companies and undertakings of other existing insurers were transferred to the General Insurance
Corporation (“GIC”) to secure the development of the general insurance business in India and for
t he regulation and control of such business. The GIC was established by the Central
Government in accordance with the provisions of the Companies Act, 1956 (“Companies Act”)
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in November 1972 and it commenced business on January 1, 1973. Prior to 1973, there were a
hundred and seven companies, including foreign companies, offering general insurance in India.
These companies were amalgamated and grouped into four subsidiary companies of GIC viz. the
National Insurance Company Ltd. (“National Co.”), the New India Assurance Company Ltd.
(“New India Co.”), the Oriental Insurance Company Ltd. (“Oriental Co”), and the United India
Assurance Company Ltd. (“United Co.”). GIC undertakes mainly re-insurance business apart
from aviation insurance. The bulk of the general insurance business of fire, marine, motor and
miscellaneous insurance business is under taken by the four subsidiaries.
3. Entry of Private Players:
Since 1956, with the nationalization of insurance industry, the LIC held the monopoly in India's
life insurance sector. GIC, with its four subsidiaries, enjoyed the monopoly for general insurance
business. Both LIC and GIC have played a significant role in the development of the insurance
market in India and in providing insurance coverage in India through an extensive network. For
example, currently, the LIC has a network of 7 zones, 100 divisions and over 2,000 branches.
LIC has over 550,000 agents and over 100 million lives are covered. From 1991 onwards, the
Indian Government introduced various reforms in the financial sector paving the way for the
liberalization of t he Indian economy. Consequently, in 1993, the Government of India set up an
eight-member committee chaired by Mr. R. N. Malhotra, a former Governor of India's apex
bank, the Reserve Bank of India to review the prevailing structure of regulation and supervision
of the insurance sector and to make recommendations for strengthening and modernizing the
regulatory system. The Committee submitted its report to the Indian Government in January
1994. Two of the key recommendations of the Committee included the privatization of the
insurance sector by permit ting the entry of private players to enter the business of life and
general insurance and the establishment of an Insurance Regulatory Authority. The Indian
Parliament passed the Insurance Regulator y and Development Act, 1999 (“IRD Act”) on
December 2, 1999 with the aim “to provide for the establishment of an Authority, to protect t he
interests of the policy holders, to regulate, promote and ensure orderly growth of the insurance
industry and to amend the Insurance Act, 1938, the Life Insurance Corporation Act, 1956 and the
General Insurance Business (Nationalization) Act, 1972”.
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Market Size of Indian Insurance Industry
The total market size of India's insurance sector is projected to touch US$ 350-400 billion by
2020 from US$ 66.4 billion in FY13.Digital@Insurance-20X By 2020, a report by Boston
Consulting Group (BCG) and Google India, projects insurance sales from online channels to
increase 20 times from present day sales by 2020, and overall internet influenced sales to reach
Rs 300,000-400,000 crore (US$ 48.51-66.68 billion).Investment corpus in India's pension sector
is anticipated to cross US$ 1 trillion by 2025, following the passage of the Pension Fund
Regulatory and Development Authority (PFRDA) Act 2013, according to a joint report by CII-
EY on Pensions Business in India. Indian insurance companies are expected to spend Rs 117
billion (US$ 1.89 billion) on IT products and services in 2014, an increase of five per cent from
2013, as per Gartner Inc. Also, insurance companies in the country could spend Rs 4.1 billion
(US$ 66.29 million) on mobile devices in 2014, a rise of 35 per cent from 2013.
Break-up of non-life insurance market in India

Motor insurance forms the largest non-life segment at 47.1 per cent share in FY13.
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Life insurance density in India

Life insurance density expanded from US$ 11.7 in FY02 to US$ 42.7 in FY12 at a CAGR of
13.8 per cent.
Source: India Brand Equity Foundation ( www.ibef.com)
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ACTUARIAL SCIENCE
INTRODUCTION
Nowadays,
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,
hemes, 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 maturi
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 insura
insurance
nce 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
tuary 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
everity of such
events.
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ACTUARIAL SCIENCE
Actuarial science is the discipline that applies mathematical and statistical methods to
assess risk in the insurance and finance industries. Actuaries are professionals who are qualified
in this field through education and experience. In many countries, actuaries must demonstrate
their competence by passing a series of rigorous professional examinations.
Actuarial science includes a number of interrelating subjects, including probability,
mathematics, statistics, finance, economics, financial economics, and computer programming.
Historically, actuarial science used deterministic models in the construction of tables and
premiums. The science has gone through revolutionary changes during the last 30 years due to
the proliferation of high speed computers and the union of stochastic actuarial models with
modern financial theory. Many universities have undergraduate and graduate degree programs in
actuarial science. . In 2010, a study published by job search website Career Cast ranked actuary
as the #1 job in the United States (Needleman 2010). The study used five key criteria to rank
jobs: environment, income, employment outlook, physical demands, and stress. A similar study
by U.S. News & World Report in 2006 included actuaries among the 25 Best Professions that it
expects will be in great demand in the future (Nemko 2006).
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ACTUARY
Actuaries are professionals who apply mathematics to financial problems. They evaluate
the financial implications of contingent events, in other words, events that are not certain to
occur. They are often involved in managing the risks that can arise from undesirable contingent
events. Actuaries evaluate the likelihood of future events. They also design ways to reduce the
financial impact of undesirable events that do occur. He is a technical expert studying mortality
of insuring public, evaluating financial condition of the insurer.
An actuary applies analytical, statistical and mathematical skills to financial and business
problems, especially those which involve uncertain future events, such as in life insurance,
general insurance, risk management, health care financing, investment, corporate finance,
banking, pensions and social security. This helps individuals and businesses to safeguard their
future, confidently and at a fair price, in an ever-changing world.
Actuaries are -
 acknowledged experts in the analysis and modeling of situations involving financial risk
and contingent events;
 concerned with both the asset and liability side of the balance sheet;
 able to provide realistic solutions to complex problems with a long term forward look;
 practical, innovative and numerate.
To do their work, actuaries must have a high level of technical knowledge. For example, they
need to understand the nature of insurance, the risks inherent in different types of assets, the
ways in which statistical models can be used, and the legal and regulatory constraints that apply
to the businesses. Their work often affects many stakeholders, so they must be able to balance
different interests and observe high ethical standards in doing so.
Although the actuarial profession has existed for many years, it is not a large profession
and, therefore, is not well known by members of the general public. In fact, there are many
countries in which no actuaries reside. Actuaries have traditionally worked primarily in the
insurance and pension industries, and mostly in countries where those industries are well
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established. In the insurance industry, actuaries can be involved in all types of insurance: life or
nonlife; and direct insurance or reinsurance.
Although actuaries are often employed by insurers, many are employed by consulting
firms and provide services to more than one insurer. Some insurance actuaries work for
supervisory authorities, as either employees or consultants. Within these organizations, actuaries
can fill a wide range of positions. Many actuaries work in technical roles, applying their skills to
tasks such as designing new insurance products, forecasting expected rates of loss, setting
premium rates, or calculating the liabilities of an insurer to its policyholders. Others apply their
knowledge and experience in management positions, with responsibilities ranging from technical
or operational departments, to product line management, to senior executive roles.
For example, they need to understand the nature of insurance, the risks inherent in different types
of assets, the ways in which statistical models can be used, and the legal and regulatory
constraints that apply to the business. They must also have good business sense, problem solving
skills, and the ability to communicate effectively with others. Their work often affects many
stakeholders, so they must be able to balance different interests and observe high ethical
standards in doing so.
In India, Insurance Regulatory Development Authority (IRDA) Regulations require that
there should be an Actuary for every life and non-life insurance company. An Actuary is a
person who has passed a specialized examination conducted by the Actuarial society of India or
the Institute of Actuaries, London.
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HISTORY OF ACTUARIAL PROFFESSION
The basis for actuarial science dates back to ancient times. The funeral societies of Rome,
wherein each member chipped in regularly to pay for the funerary services of members when
their time was up, were the first forerunner of life insurance. And naturally, someone had to
figure out how much each member would have to pay to cover the upcoming funerals of the aged
among them. These calculations were rough, but given the small number of people in such
societies -- a few dozen to several hundred -- it was relatively easy to estimate upcoming deaths
and the associated costs.
From the fall of Rome, however, it took mathematics and business theory more than
1,000 years to catch up to the point wherein they could be advanced further. Edmund Halley was
best known for discovering of the comet that now bears his name. However, he also helped
found modern actuarial science. In 1693, Halley made a study of the population in the German
town of Breslau. Through careful recording of births, deaths and the aging population, Halley
compiled a "mortality table." That bit of mathematics, using probability theories developed just a
few decades before, allowed Halley to accurately predict the likelihood of a given person dying
in any given year. That, in essence, is the very foundation of the life insurance industry. By the
ability to predict life expectancy, Halley was able to determine how much to charge a given
person in premiums to cover burial costs.
A generation later, English mathematician James Dodson created an entire framework for
the creation of a mutual life insurance company, but died in 1757 -- five years before the Society
for Equitable Assurances for Lives and Survivorship was founded in London.
The term “actuary” was coined in London in 1762 by the equitable, which was first used
to scientifically calculated premium rates. The Secretary of the Board of the Equitable was given
the title “Actuary”, based on the Latin actuaries who was the business manager Senate in ancient
Rome, and kept the daily verbatim record there. In 1775, William Morgan FRS was appointed as
the Actuary of the Equitable. Since he was himself an excellent mathematician, he took over the
role of premium calculation and financial manager and became the first actuary in the sense we
know it today. Thus, the actuarial profession was formally established in 1848 with the formation
of the Institute of actuaries (London). At one point of time it was the only institute it the world to
conduct the professional exam.
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Over the years, actuarial associations were established in several other European countries, in the
United States, Australia and Japan. In 1895, the first International Congress of Actuaries was
held in Brussels, and the International Actuarial Association (IAA) was formed.
In INDIA
In India, The Institute of Actuaries of India, is the sole professional body of actuaries in
India, and was formed in September 1944. It was formed by the conversion of t he Actuarial
Society of India into a body corporate by virtue of the Actuaries Act, 2006.
According to the committee of reforms in insurance sector (1994) at the time of

nationalization there were only 67 actuaries in the service of the Life insurance company but
their number eventually came down to eleven. Entry of private companies has been allowed by
the government since recent past years. Many of these like HDFC Standard, Bajaj Allianz,
Prudential, ICICI, ICICI Lombard, Birla Sun Life, IFFCO TOKIO, MAX New York, TATA
AIG, AVIVA Life, MET Life, SBI Life, OM Kotak Mahindra, ING Vysya Reliance and Royal
Sundaram are very active in the market due to which the demand of actuaries is sure to gain
momentum, because “an Actuary” is the heart of the insurance business.
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ACTUARIAL WORKSPACE
a. Life and general insurance

 Establishing estimates for unpaid claim liabilities, unearned premium and other estimated
liabilities (technical reserves) and certifications
 Insurance product premium pricing
 Surrender value calculations
 Management of pooled savings products, such as with profits
 Reinsurance program design and management
 Underwriting policy definitions
 Life groups underwriting
 Solvency calculations and reports
 Internal modeling, including stochastic asset-liability modeling
 Strategic asset management and capital management
 Value management (embedded value)
 Corporate strategy and planning and control management, including mergers and
acquisitions
b. Health insurance, public health and healthcare management
i. Topics that apply to all lines
 Product development, pricing, product management, premium adjustments, marketing
and competition studies from all stakeholder’s perspectives
 Underwriting and reinsurance
 Modeling, profit testing, reserving (including with-profit attributions), solvency
calculations. embedded value, financial forecasts and controls
 Catastrophic claim, reinsurance, stop-loss insurance and high-risk pool analysis
 Calculation of reserve for long term guarantee provisions
 Calculation of implicit debt
ii. Topics that are health specific
 Health utilization, benchmarking and cost trend forecasts
 Health risk status analysis and revenue risk adjustment
 Disease management return on investment and predictive modeling
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 Medical provider reimbursement analysis, including provider capitation, financial

incentives and episode payments
 Population disease prevalence forecasts
 Medical device, pharmacy and new technology efficiency studies
 Behavior change studies related to health issues
 Wellness and preventive care impact studies
 Evidence based treatment protocols
c. Private pensions and other employee benefits
 Advice to stakeholders on the design of occupational pension schemes and other long
term employee benefits
 Funding requirements of occupational pension schemes and other long term employee
benefits
 Solvency requirements of occupational pension schemes
 Internal modeling, including stochastic asset-liability modeling
 Strategic asset management
 Evaluation of pension liabilities involved in mergers and acquisitions
 Design and cost early retirement incentive schemes
d. Social insurance and other similar benefits
 Reporting the projected financial status of a Social Security Plan (SSP)
 Statements of opinion on SSP policy matters (e.g. adequacy of contributions)
 Calculations concerning actuarial aspects of benefits (for instance, commutation
functions if this is permitted, or annuity rates in notional defined-contribution SSPs)
 Production of numbers for inclusion in the formal financial reports of the SSP
 Production of short-, medium- and long-term projections of the finances of the SSP for
wider government budgeting purposes
 Management of or input into the investment of the assets of a SSP, including asset-
liability management
 Calculating Implicit Health Liabilities (IHL)
 Projecting the cost of welfare benefits for widows and orphans, etc.
 Costing unemployment benefits
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e. Enterprise Risk Management (ERM)

 Responsibility for the risk management/CRO function
 Advising on setting company risk appetite and risk limits
 Creation of financial condition reports
 Building company risk models
 Evaluating impact of acquisition on risk profile
 Performing stress tests
 Identifying and planning for emerging risks
 Valuation of risks and risk interaction
 Valuation of risk mitigation solutions
 Execution of risk mitigation programs
 Reporting on ERM programs to investors and rating agencies
f. Other financial services
 Design and pricing of financial products (in particular more complex products such as
those based on derivatives)
 Analysis of investment performance
 Building internal models of the business
g. General roles
 Various support functions for different stakeholders, i.e. ministry of health, regulators,
supervisors, expert witness services, hospitals, medical professions, etc.
 Providing advice to regulators and legislators
 Representing employer, employee groups or unions, or serving as an expert witness
before court litigations
 IT-Development, establishment and management of datasets
 Energy pricing
 Interactions with rating
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QUALIFICATIONS TO BECOME AN ACTUARY
Some actuarial associations establish qualification standards that must be met by

individuals who wish to become members. The qualification standards often cover areas such as
education, professional knowledge, experience, and professionalism.
Actuaries require a high level of knowledge of mathematics and statistics. Most actuaries
attain such knowledge through attendance at university. Some universities offer degrees in
actuarial science, although many actuaries have studied at universities that do not offer such
degrees, instead obtaining degrees in mathematics or related subjects.
The approach to actuarial education varies among jurisdictions. Some place more
emphasis on university studies, while others require more self-study, with the results tested
through examinations developed by the professional association or, in some cases, a supervisory
authority. The IAA has set out a syllabus of topics in which, at a minimum, competence must be
demonstrated by individuals who seek qualification as actuaries.
In addition to meeting educational requirements and successfully completing professional
examinations, many actuarial associations require a minimum period of practical experience,
under the guidance of an experienced actuary, before an individual can attain full professional
qualification. Some associations require participation in formal training on ethics and
professionalism, and may require the recommendations of one or more members before an
individual’s application for membership will be accepted.
Increasingly, actuarial associations require members to undertake continuing professional
development as a condition of maintaining their membership. Such requirements are designed to
ensure that actuaries are aware of evolving best practices, changes in regulatory requirements,
and relevant business developments.
In many jurisdictions, full membership in a recognized actuarial association is required to
perform certain official tasks, such as determining the technical provisions of an insurer. In some
jurisdictions, full membership is a necessary but not a sufficient condition to perform these tasks,
with additional specialized qualification requirements being imposed by either the professional
association or a regulator.
Only if a local actuarial association imposes requirements that cover at least the
following topics is it eligible for full membership of the IAA:
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 Financial mathematics
 Probability and mathematical statistics
 Economics
 Accounting
 Modeling
 Statistical methods
 Actuarial mathematics
 Investment and asset analysis
 Actuarial risk management
 Professionalism.
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SKILLS REQUIRED
Actuaries are skilled statisticians who specialize in assessing risk for their clients. While
the majority of actuaries work for insurers, many actuaries work for investment firms, pension
funds, mortgage lenders, venture capital firms, start-ups and established companies in the
process of making calculated decisions. Without actuaries, insurance companies would not know
how much premium to charge, investors would have a hard time deciding when to invest and
companies would not be able to make fully informed decisions. There is a certain skill set that all
good professional actuaries must have
Solid Mathematical Skills: Actuaries use a great deal of math -- probability, statistics and
calculus -- in their work. While computer models do many of the actual calculations, actuaries
must fully understand the principles behind their work so they can explain their findings to their
clients. This analysis is as important to clients in the decision-making process as the actual risk
assessment.
Excellent Analytical Skills and People Sense: Computing risk factors must take human activity
and motivations into account, since they can change what seems to be a simple assessment.
Proper analysis of any factors that rely on human behavior, such as a life insurance policy, takes
a keen sense of what people think and how this affects how they act. Using these kinds of
variables demands an ability to analyze beyond looking at the numbers.
Understanding of Business: Actuaries must understand the fundamentals of the businesses they
analyze in order to make accurate assessments. A thorough understanding of a business identifies
variables and inconsistencies present within that business that may separate it from other types of
business. Without this level of accuracy, the results of an actuary's assessment will be flawed,
which could expose the client to a significant loss.
Superior Computer Skills: Computers perform a large amount of the calculations actuaries use
in their analyses. This means that actuaries must have a thorough understanding of a variety of
computer software programs. They may also have to create or consult on the creation of
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additional computer programs that will allow them to be more accurate and effective in their
analysis. Actuaries need to be proficient in presentation software for the creation of reports and
studies.
Excellent Communication Skills: Actuaries have to tell their clients not only what the statistics
are, but also what they mean. This involves a great deal of communication skill. If a client knows
what is contributing to those statistics, then he can make adjustments that bring a better outcome,
like raising premiums to cover heavier than expected losses, or asking for conditions on a
venture capital project.
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TRAITS WHICH ALL ACTUARIES SHOULD POSSESS
There are many beneficial traits, which an actuary should possess. First and foremost, an
actuary needs to possess wonderful mathematical skills. Since they will be dealing a great deal
with statistical equations and data, having such mathematical skills will help them to excel in
their job responsibilities.
Good analytical skills are another important trait which an actuary should possess as it
will help them in their job role. As they will need to analyze a variety of documents, having
analytical skills, which are more than adequate, will greatly benefit them in the long run. An
actuary is an individual who should possess good public speaking skills as well. In their daily job
duties, not only will they need to analyze documents and data but they will also have to report
such data results to company officials and members of the public. Therefore, in order to best get
their opinions and conclusions across in a straightforward, easy to understand manner, good
public speaking skills should be a prerequisite to taking on the role of actuary.
Creativity is something, which actuaries should possess. From time to time, they will
need to aid company officials in the drafting of company policy and make changes to the policy.
With a little bit of creativity, an actuary will be able to take the documentation and put such a
spin on it that it is formed into a proper and valid policy. One who is an actuary should also have
wonderful research skills. Since many of the documents that they need to analyze will not just
pop into their laps, it is important that actuaries can do good research and find out what they
need to know with regard to statistics and pertinent documents in an efficient and expedient
manner.
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.
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ROLE OF ACTUARY IN INSURANCE COMPANIES

As mentioned, actuaries are involved in many aspects of the operations of insurers. To
illustrate this fact and focus attention on some of the key areas of actuarial work, it may be useful
to consider a concept known as the actuarial control cycle. The actuarial control cycle shows
that, within the business environment, there are many interrelated factors that affect the ability of
an insurer to generate and maintain sufficient capital to ensure that it can meet its obligations to
policyholders.
BUSINESS ENVIRONMENT
Risk
Solvency Design
Profit Pricing
Capital
Experience Liabilities
A/L Mgmt Assets
PROFESSIONALISM
The diagram is circular because each element has an effect on the next, and analysis of the
results provides necessary input to future developments along the entire cycle. The
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professionalism of the actuaries involved is an essential ingredient in the successful operation of

the cycle.
Risks
Insurers are subject to many types of risk, not only those against which they insure
policyholders, which are called underwriting risks. Other types are credit, market, liquidity, and
operational risks. The objectives of an insurer are to understand the nature and extent of the risks
to which it is subject and to manage those risks effectively. Actuaries are often involved in the
risk assessment process. They identify the specific risks that can affect insurers and consider the
relevance of those risks to a particular insurer. They seek to quantify the most relevant risks, and
use this information to assess the potential effect of those risks on the insurer’s financial
situation.
Actuaries also participate in managing the risks. For example, they may determine how
much risk an insurer can afford to retain on each policy, design a reinsurance program to deal
with excess amounts of risk, and negotiate the terms of reinsurance contracts with the reinsurers.
In recent years, a growing number of companies in a wide range of businesses have appointed
chief risk officers and adopted an approach known as enterprise risk management (ERM). In the
insurance business, the chief risk officer is often an actuary.
Design
Insurers seek to design products that will meet market needs. For example, individuals
might be willing to buy a product that would insure them against the risk of unemployment, but
if the insurance covered situations where an individual quit voluntarily, it is unlikely that the risk
could be managed by the insurer. Of course, products must also be designed to in a way that they
can be priced appropriately, from the perspectives of both the insurer and its policyholders.
Actuaries often play important roles in the product design process. They assist in
identifying market needs, for example, through the analysis of sales patterns, competitors
products, and social and demographic trends. They work with others, such as marketing,
underwriting, and investment experts, on product design teams. Their work can involve assessing
the feasibility of product design features suggested by others, as well as proposing alternatives
for consideration.
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Actuaries are also involved in designing compensation schemes for the intermediaries
that will sell the products. The compensation schemes must be attractive to the intermediaries,
affordable, and provide incentives to promote the sale of high quality business.
Pricing
If an insurer is to be successful in the long term, its products must be priced adequately to
produce profits. At the same time, prices must be competitive with those offered by other
insurers and, for some types of products, non-insurance alternatives. Prices must be reasonable
from the policyholders perspective, being equitable among various classes of policyholders and
bearing a reasonable relationship to the benefits provided by the policy.
There are many factors that must be considered when calculating premium rates that can
be expected to produce profits. The costs of the benefits provided by the product design must be
estimated, including not only basic claims costs but also the potential costs of any guarantees and
options provided to policyholders. Expenses must be accounted for, including commissions,
underwriting costs, other policy administration costs, and overhead costs. The prices must reflect
the rates of return that the insurer expects to earn on the investment of premiums, as well as
expectations about the willingness of the policyholders to continue paying premiums and
maintain their policies in force. To the underlying cost factors mentioned above must be added
the need to produce a reasonable profit margin. In many jurisdictions, insurers are required to
maintain capital at levels that are related to the risks inherent in the policies they have
underwritten. Even in the absence of such requirements, sound business practice dictates that
insurers have adequate capital to support the risks they have assumed.
Accordingly, the profit margins should be sufficient to provide a return on capital that is
acceptable to the insurer’s shareholders. Further complicating matters, in some jurisdictions there
are regulatory constraints on the pricing of insurance products.
Actuaries are often heavily involved in the pricing process, particularly for long term life
insurance products. They develop assumptions for the various cost factors, taking into account
the design of the product, the insurer’s past experience with similar products, the experience of
other insurers, and expectations of future demographic and economic conditions. Actuaries use
models to project future cash flows from the product, solving for the premium rates that will
produce the desired profit margins.
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However, rarely does the actuary’s job end there. The calculated premium rates might be
uncompetitive, at least for some potential policyholders, or outside of the constraints set by
regulation. In such cases, the actuary may need to adjust the premium rates, for example,
lowering them at some ages and raising them at others, or modify features of the product design.
The actuary also needs to test the sensitivity of the profit margin to variations in the cost factors.
If profitability is too sensitive to certain factors, the product design may need to be changed or an
additional premium charged for the risk involved.
Liabilities
Actuaries select appropriate methods for valuing the various types of obligations. They
establish assumptions for the parameters that will affect the value of the obligations. Economic,
demographic, and business conditions change over time, and information becomes available
about the experience of the business that an insurer has underwritten. Therefore, the assumptions
used in calculating technical provisions often differ from those used in the pricing process, and
may change over time. Actuaries must ensure that the policy and claims data used in the
calculations is as complete and accurate as possible. They prepare models that incorporate the
methods and assumptions they have selected and apply these models to the data to calculate the
technical provisions.
Actuaries should also test the sensitivity of technical provisions to changes in the
assumptions, to ensure that the provisions will be adequate even if future experience differs
somewhat from the assumptions. The results of this testing may show a need to modify the
methods or assumptions. Modern international financial reporting standards actually expect the
actuary to make adjustments to the liability figures when changes in assumptions appear to be
warranted.
Assets
Actuaries may participate in the selection of investment managers who will be
responsible for investing some or all of the insurer’s assets. They can help to establish
appropriate targets for performance of the investment managers and evaluate actual performance
with reference to those targets. Some actuaries work in the investment operations of insurers,
selecting investments and managing the mix of investments in the portfolio.
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Asset and liability management

Recognizing the importance of having an investment portfolio that is appropriate to the
nature of their obligations, a growing number of insurers have taken steps to actively manage the
relationship between assets and liabilities on an ongoing basis. The main objective of asset and
liability management (ALM) is to reduce the risk to an insurer that exists if assets and liabilities
are mismatched, for example, if a change in market conditions might cause an increase in the
value of liabilities while also causing a decrease in the value of assets. On a more positive note,
ALM can help an insurer to invest its assets more effectively and generate higher profits. Most
insurers that practice ALM have established committees to oversee this activity. Actuaries
participate in the ALM committee together with investment managers, product line managers,
and financial officers.
Actuaries are often responsible for modeling the asset and liability cash flows, and
assessing the effects of various risk factors on the results. They develop techniques and
measurement tools that can be used in the ALM process to reduce the effects of these risks. For
example, a basic approach to ALM involves measuring the average duration of expected liability
cash flows and investing in a portfolio of assets that has the same average duration.
Experience analysis
When discussing the previous elements of the actuarial control cycle, the need for an
actuary to make assumptions about factors that will affect the future profitability of an insurer
has been mentioned several times. In setting the assumptions, it is important to have both
information about past experience with respect to each of the factors and knowledge of changes
in the environment that might result in future experience being different than that of the past.
Analysis of past experience provides information about what has happened, including trends that
might continue into the future.
Experience analysis is useful not only in setting assumptions but also in assessing how
closely actual experience has corresponded with previous assumptions. Such assessments are
essential to the identification of sources of profits and losses of an insurer. They enable an
actuary to revise the assumptions used in calculating technical provisions to reflect changing
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conditions, helping to ensure that the provisions will be adequate. The information can also used
to manage the business more effectively, for example, by revising underwriting criteria to
improve the quality of business, targeting marketing efforts to more profitable products and
consumers, and adjusting premium rates to achieve profit objectives.
Actuaries are often responsible for conducting experience analyses. They develop the
methods of analysis, identify and prepare the necessary data, and perform the analyses. They
interpret the results, communicate this information to appropriate members of management, and
propose actions that might be taken in response to the information.
Profitability
It is essential that insurers have a clear understanding of the sources of their profits or
losses. This information can be used to help identify and deal with problems as they arise. It also
aids in the identification of business opportunities, for example, products that have been more
profitable than expected and might be more actively promoted. Some products have pricing
elements that can be adjusted, for example, premium rates, expense charges, or interest crediting
rates. Profitability analysis, along with consideration of likely future conditions and the
competitive environment, enables an insurer to make appropriate adjustments to these elements.
Some products, referred to as participating or with-profits policies, involve the payment of
premiums that are higher than they might need to be, on the understanding that the profits will be
shared with policyholders through dividends or bonuses. In order to arrive at an equitable basis
for sharing profits with such policyholders, and to help decide what portion of the profits to
distribute to shareholders, understanding of sources of profitability and trends in profitability is
essential.
Actuaries are involved in the analysis of profitability in several ways. They can determine
the sources of profits or losses. In some cases, actuaries calculate the present value of anticipated
future profits of the insurer, referred to as embedded value. Actuaries develop dividend and
bonus scales for participating or with-profits business, and present their recommendations to the
board of directors for approval.
On a broader scale, actuaries are often involved in developing and implementing business
strategies designed to increase the profitability of an insurer. For example, they participate in
identifying other insurers that might be acquired or with which an insurer might merge. They
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assist in determining the value of acquisition candidates. If a line of business is unprofitable,

actuaries can help to assess whether the business should be run off or sold to another insurer. In
such transactions, as well as situations when an insurer is changing its form of organization from
mutual to shareholder-owned or vice versa, actuaries are often required to assess the effects of
the transaction on policyholders and provide assurance that no class of policyholders will be
disadvantaged because of the transaction.
Solvency
Insurers must remain solvent if they are to meet their obligations to policyholders, not to
mention generating a positive return on the investment of their owners. Most, if not all,
jurisdictions impose requirements regarding the minimum amount of capital that must be
maintained by an insurer to help ensure its solvency.
In many jurisdictions, capital adequacy requirements are proportional to the risk inherent
in an insurer’s business. Also, some jurisdictions require insurers to perform stress tests, which
involve projecting the effects of adverse scenarios on the future solvency of the insurer. Insurers
must maintain at least enough capital to meet regulatory requirements, or else face the risk of
being forced to cease doing business. However, if an insurer has too much capital in relation to
the size and risk of its business, it will be very difficult for the insurer to generate a sufficient
return on capital to satisfy its shareholders. Therefore, insurers seek to avoid holding more
capital than they need to cover the risk inherent in existing business, referred to as economic
capital, and to support expected future growth in their business.
Actuaries are often involved in the assessment of solvency and management of capital.
They can calculate the minimum capital required for regulatory purposes, both currently and
based on projections of future growth in business. Actuaries use models to perform the stress
tests required by regulators and to determine economic capital. They also participate in the
formulation of strategies to make effective use of an insurer’s capital and to raise additional
capital, if necessary.
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ROLE OF ACTUARIES IN LIFE INSURANCE
It is universally acknowledged that the life insurance business depends fundamentally on

actuarial skills. However, different regulatory traditions ascribe different levels of professional
responsibility to the actuary.
At one end of the regulatory spectrum is the substantive control approach, whereby
products have to be approved by the supervisor, as do the actual premium rates to be charged,
including, in the case of life insurance, technical assumptions. In these circumstances the role of
the company actuary is focused mostly on carrying out the calculations in accordance with the
agreed methods and assumptions. Proposals for new policies had to be developed, but the scope
for individual actuarial judgment was limited, since the key judgments on adequacy and viability
were taken by the regulatory authority. This placed particularly onerous responsibilities on
actuaries within the supervisory body.
Actuaries are experts who are experienced in examining and assessing insurance
functions, stocks and underwriting techniques and offer complex assistance regarding actuarial
matters to policy investigators and other complex staff. Actuaries work for Insurance coverage,
Retirement living funds, General insurance, Investments, Government and Instructors. Actuaries
are experts in the industry that evaluate the effect of various forms of possibility, in the past
determining the chance of failures and working to reduce their effect.
An actuary is an enterprise professional who deals with the economical effect of
possibility and concern. Actuaries in the past evaluate the chance of activities and evaluate the
outcomes in order to reduce failures, emotional and economical, associated with not sure
unwanted activities. Since many activities, such as death, cannot be prevented, it is helpful to
take measures to reduce their economic effect when they occur. These risks can affect both sides
of the balance sheet, and require asset administration, obligation administration, and assessment
expertise. Logical expertise, enterprise knowledge and understanding of human behavior and the
vagaries of information techniques are required to design and manage programs that control
possibility. Actuaries are employed in a number of insurance areas, including life insurance,
property insurance and control. Actuaries offer expert examination of economic security
techniques, with a focus on their complication.
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1. Designing and pricing contracts
2. Monitoring the funds required to provide the benefits promised.
3. Recommending the bonuses to be added to with- profit policies.
Now-a-days, actuaries may also provide expert advice on investment, get involved in the
planning and marketing of products, and advice on strategic risk measurement- and so be
involved in almost any aspect of a company’s activity.
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ROLE OF ACTUARY IN GENERAL INSURANCE
General insurance actuaries help provide expertise in three main areas:
 Reserving -in reserving they apply statistical techniques to assess the likely outcome of
general insurance liabilities, typically, and the provisions that are needed for reporting
purposes.
 Rating -the pricing actuary assesses the frequency and average amount of claims to
estimate premiums.
 Capital modeling -for capital modeling the actuary projects both the liability and assets of
insurers to assess solvency and future capital needs.
General insurance or non-life insurance policies, including motor and household policies,
provide payments depending on the loss from a particular financial event. General insurance
typically comprises any insurance that is not determined to be life insurance. It is called property
and casualty insurance in the U.S. or non-life insurance.
General insurance is broadly divided into two areas, personal lines and commercial lines.
Commercial lines products are usually designed for relatively large legal entities. These would
include workers' comp (employer’s liability), public liability, product liability, commercial fleet
and other general insurance products sold in a relatively standard fashion to many organizations.
There are many companies that supply comprehensive commercial insurance packages for a
wide range of different industries, including shops, restaurants and hotels. Personal lines
products are designed to be sold in large quantities. This would include motor insurance,
household insurance, pet insurance, creditor insurance and others.
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THE ROLE OF THE ACTUARY WITH INSURANCE BROKERS
For insurance brokerage the primary focus of the actuary’s role is assisting the broker in
structuring an insurance program for the client. The broker is the individual responsible for the
solicitation of actuarial work from clients and initiates the request to prepare an actuarial study
for the client.
COMMUNICATION WITH THE BROKER
The communication between the broker and actuary is crucial in the preliminary stage.
The actuary needs to clearly identify how the client or broker is going to use the study. The
availability of a prior study may save significant time and cost if loss and claim count
development triangles have already been prepared. The actuary needs a clear understanding of
the client’s business. The client’s stockholders annual statement is a good source of information.
If the client is not a publicly traded corporation, then any client promotional information can be
used. After gathering all needed information. The actuary should send a confirmation memo to
the broker outlining the project and including the expected cost and anticipated completion date.
COMMUNICATIONS WITH THE CLIENT
With the large amount of data available, more emphasis can be placed on the client’s data
and less on the industry data. Due to the large number of claims, it is possible for the actuary to
do more analysis that reflects the unique experience of the client. Because of the emphasis on the
client’s data, the actuary may have substantial direct contact with the client. An important use of
the actuarial study is the calculation of the appropriate accruals for the projected period and the
required reserves for prior periods.
Determining appropriate accruals and required reserves is extremely important for large
accounts. Since there is more emphasis on the accruals of the client, there is more interaction
directly with the client and the client’s financial department. Because of the increased interaction
with the client on large accounts, the actuary can play a major role in solidifying the account
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with the broker. In some instances the actuary may have more contact with the client’s financial
department than any other individual in the brokerage firm.
Another function that an actuary may be asked to perform is to present the findings of the
study to the client’s auditors. This may be a very important role for the actuary, because the
amount of the required reserve and loss projection can be material to the client and to the
auditor’s evaluation of the client’s financial balance sheet.
PREPARING A LOSS PROJECTION
The ability of the actuary to analyze the client’s data is a critical role. The process begins
with the actuary analyzing the most recent evaluation of detailed data for the client. The actuary
needs to ascertain whether or not allocated loss adjustment expenses are included and whether
the losses are limited to some amount or unlimited.
The analysis begins by segmenting the most recent evaluation of incurred losses into
ranges. The actuary examines this data to see if the losses fit the pattern that the actuary would
anticipate for this type of client. If the study has been prepared in the past, then the actuary can
compare policy periods at like periods of development. This is extremely important for analyzing
the most current period and any possible changes in the initial reserving philosophy. The
actuary’s experience can be used to analyze the loss distribution to determine whether the claim
reporting pattern, percentage of claims, and size and number of open claims seem reasonable.
This is information that can be very important to the client and broker, especially when a client
changes claims adjustment organizations.
The determination of appropriate loss development factors can be very difficult and uses
all the experience of the actuary. For medium sized accounts, quite often the client’s data is not
fully credible to project losses or to calculate required reserves. The actuary must then augment
the client’s data with appropriate industry data. Again, the experience of the actuary becomes
very important in determining what industry data to use and what weight to apply to the industry
data. The use of industry data is a critical issue for medium sized accounts.
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THE ACTUARY AS A RESOURCE FOR BROKERS
The actuary has the responsibility in the brokerage firm to keep the brokers aware of
changes in the actuarial environment. The medium to convey the information can range from a
phone call to a seminar. Some examples are:
 Preparing various insurance exhibits applicable to their clients, such as loss development
factors for a municipality.
 Providing comment on loss data or analysis from other sources submitted by the broker
 Participating in or leading an internal seminar for the brokers on a specific topic or
insurance issue.
36
APPOINTED ACTUARY IN INDIA
An insurance company has to take the assistance of an actuary in conducting the business of
insurance. The IRDA in consultation with the Insurance Advisory Committee has made
regulations for appointment of actuary. Regulation 5 of the IRDA (Appointed Actuary)
Regulations, 2000’ provides that a life insurer shall not carry on business of insurance without an
appointed actuary. The term ‘appointed actuary’ is a designation.
RELAXATION OF QUALIFICATION OF ACTUARY
Where an insurer is unable to appoint an actuary in accordance with the regulations prescribed
for qualification of an appointed actuary (sub-regulation (2) of regulation 3 of IRDA (Appointed
Actuary) Regulations, 2000) he may make an application to the Authority in writing for
relaxation of one or more conditions mentioned therein. The Authority shall on receipt of the
application communicate its decision to the insurer within 30 days of receipt. The Appointment
of an appointed actuary shall take effect from the date of approval by the Authority.
CESSATION OF APPOINTMENT OF APPOINTED ACTUARY
An appointed actuary shall cease to be so, if he or she has been given notice of withdrawal of
approval by the Authority on the following grounds:
- That he/she cease to be eligible in accordance with the Sub regulation (2) of regulation 3
of IRDA (Appointed Actuary) Regulations, 2000. (Sub- regulation (3) prescribes the
qualifications for an appointed actuary); or
- That he/she has in the opinion of the Authority, failed to perform adequately and properly
the duties and obligations of an appointed actuary.
The authority shall give an appointed actuary a reasonable opportunity of being heard, if
given a notice of withdrawal of approval.
If a person cease to be an appointed actuary otherwise than on grounds of ineligibility or

failure to perform duties, the insurer and appointed actuary is required to inform the
Authority the reasons thereof within fifteen days of such a cessation.
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APPROVAL OF IRDA
An insurer shall seek the approval of the Authority to the appointment of appointed actuary by
submitting the application in prescribed form IRDA-AA-1. The Authority shall, within thirty
days of the receipt of such application either, accept or reject the same, however, before rejection
of the application the authority (IRDA) shall give the insurer an opportunity of being heard.
Where an insurer does not receive approval within thirty days of the receipt of such application
by the Authority, the insurer shall deem that the approval has been granted by the Authority.
ELIGIBILITY
A person shall be eligible to be appointed as an appointed actuary for an insurer, if he or she

shall be.
 Ordinarily resident in India

 Fellow member of the actuarial society of India;
 An employee of the insurer or a consulting actuary in case of general insurance business;
 An employee of life insurer in case of life insurance business;
 A person who has not committed any breach of professional conduct;
 A person against whom no disciplinary action by the Actuarial Society of India or any
disciplinary action pending with any other actuarial professional body;
 Not an appointed actuary of another insurer;
 A person who possesses a certificate of practice issued by the Actuarial Society of India;
and
 Not cover the age of Seventy years.
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THE ROLE OF APPOINTED ACTUARIES
A more comprehensive formal involvement of the actuary in the financial monitoring and
control of the insurance business began to be achieved in the United Kingdom through the
introduction in 1974 of the Appointed Actuary concept, which was first enacted in the Insurance
Companies Act 1973.
An important distinguishing feature of this approach from what had gone on before was
the continuous nature of the appointment. The Appointed Actuary is not just required to carry out
specific tasks, such as the periodical valuation of liabilities and the determination of surplus, but
must be identified as a named individual at all times.
The legislation requires the Appointed Actuary to carry out an annual valuation of the
liabilities of the long-term insurance business and to determine the surplus in the long-term
business fund available for distribution. The Appointed Actuary must provide an annual
certificate detailing the amount of the required minimum solvency margin and certifying that the
amount published as reserves in respect of the liabilities of the long-term business constitutes
proper provision for those liabilities. The Appointed Actuary must also certify each year that the
data are adequate to support the valuation and that the premiums charged have been adequate in
relation to the corresponding liabilities being taken on, having regard to the overall financial
position of the company.
The Appointed Actuary must be satisfied at all times that, if he or she were to carry out a
full actuarial valuation, the financial position would be satisfactory. The formal published
valuation takes place only annually, is submitted to the supervisor six months after the date to
which it relates, and may not be analyzed in detail until some weeks (or even months) after that.
The Appointed Actuary, on the other hand, is deemed to be in such a key position within the
company that he or she should have a good idea of what the position is at any particular moment,
and not just at year-ends. In order to be satisfied on this, the Appointed Actuary has to monitor in
detail all aspects which could impinge upon the company’s financial position, in particular:
 product design
 methods of marketing
 volumes of business
39
 premium rates
 options and guarantees
 surrender values and paid-up values
 investments held and changes in investment policy
 derivative exposures
 current and likely future level of expenses
 current and likely future tax basis
 reinsurance arrangements
 claims handling policy
 any contingent liabilities.
The Appointed Actuary needs to be able to model the financial behavior of the company
between valuations, so as to be able to estimate the effects of these various factors on the overall
financial condition and, in particular, on the company’s ability to meet (and continue to meet) the
minimum solvency margin requirement.
The Appointed Actuary is clearly expected to act as a front-line controller of prudential
financial management, lessening the need for close regulatory attention, which could never in
practice give the same degree of continuous monitoring as is required to be undertaken by the
Appointed Actuary. The link to the insurance supervisor is effected through the professional duty
to “blow the whistle” if the Board or the management of the company persists in pursuing a
strategy which the Appointed Actuary believes may have a serious adverse financial impact on
the company, in spite of attempts to persuade them otherwise.
It is also recommended, that the Appointed Actuary should report regularly to the Board
of Directors on the possible future financial condition of the company. This requires work to be
carried out on a dynamic financial analysis of the company, investigating the possible impact on
the future financial condition of a variety of plausible adverse scenarios. The idea is to help the
Board to understand the risks to which the company is most vulnerable, and to formulate
strategies for managing and controlling those risks.
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POWERS OF APPOINTED ACTUARY
1. An appointed actuary shall have access to all information or documents in possession, or

under control, of the insurer if such access is necessary for the proper and effective performance
of the functions and duties of the appointed actuary.
2. The appointed actuary may seek any information for the purpose of sub-regulation of this
regulation from any officer or employee of the insurer.
3. The appointed actuary shall be entitled, --
 to attend all meetings of the management including the directors of the insurer;
 to speak and discuss on any matter, at such meeting,--
o that relates to the actuarial advice given to the directors;
o that may affect the solvency of the insurer;
o that may affect the ability of the insurer to meet the reasonable expectations of
policyholders; or
o on which actuarial advice is necessary;
 to attend, --
o any meeting of the shareholders or the policyholders of the insurer;
or
o Any other meeting of members of the insurer at which the insurer's annual accounts
or financial statements are to be considered or at which any matter in connection with
the appointed actuary's duties is discussed.
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DUTIES AND OBLIGATIONS OF ACTUARIES
In particular and without prejudice to the generality of the foregoing matters, and in the interests
of the insurance industry and the policyholders, the duties and obligations of an Actuary of an
insurer shall include:--
1. Rendering actuarial advice to the management of the insurer, in particular in the areas of
product design and pricing, insurance contract wording, investments and reinsurance;
2. Ensuring the solvency of the insurer at all times;
3. Complying with the provisions of the Act in regard to certification of the assets and liabilities
that have been valued in the manner required under the said section;
4. Drawing the attention of management of the insurer, to any matter on which he or she thinks
that action is required to be taken by the insurer to avoid--
 any contravention of the Act; or

 prejudice to the interests of policyholders;
5. Complying with the Authority's directions from time to time;
6. In the case of the insurer carrying on general insurance business to ensure, --
 that the rates are fair in respect of those contracts that are governed by the insurer's in-
house tariff;
 that the actuarial principles, in the determination of liabilities, have been used in the
calculation of reserves for incurred but not reported claims (IBNR) and other reserves
where actuarial advice is sought by the Authority;
7. In the case of the insurer carrying on life insurance business,--
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 to certify the actuarial report and abstract and other returns as required under section 13
of the Act;
 to comply with the provisions of section 21 of the Act in regard to further information
required by the Authority;
 to comply with the provisions of section 40-B of the Act in regard to the bases of
premium;
 to comply with the provisions of the section 112 of the Act in regard to recommendation
of interim bonus or bonuses payable by life insurer to policyholders whose policies
mature for payment by reason of death or otherwise during the inter-valuation period;
 to ensure that all the requisite records have been made available to him or her for the
purpose of conducting actuarial valuation of liabilities and assets of the insurer;
 to ensure that the premium rates of the insurance products are fair;
 to certify that the mathematical reserves have been determined taking into account the
guidance notes issued by the Actuarial Society of India and any directions given by the
Authority;
 to ensure that the policyholders' reasonable expectations have been considered in the
matter of valuation of liabilities and distribution of surplus to the participating
policyholders who are entitled for a share of surplus;
 to submit the actuarial advice in the interests of the insurance industry and the
policyholders;
8. Complying with the provisions of the Act in regard to maintenance of required solvency
margin in the manner required under the said section;
9. Informing the Authority in writing of his or her opinion, within a reasonable time, whether,--
 the insurer has contravened the Act or any other Acts;

 the contravention is of such a nature that it may affect significantly the interests of the
owners or beneficiaries of policies issued by the insurer;
 the directors of the insurer have failed to take such action as is reasonably necessary to
enable him to exercise his or her duties and obligations under this regulation; or
43
 an officer or employee of the insurer has engaged in conduct calculated to prevent him or
her exercising his or her duties and obligations under this regulation
DUTIES OF AN ACTUARY IN LIFE INSURANCE BUSINESS
In case of the insurer carrying life insurance business the actuary shall perform the following
duties:
1. Certify the actuarial report, abstracts and other returns;

2. Comply with provisions of Section 112 of the Act, 1938 in regard to further information
required by the Authority;
3. Comply with provisions of Section 40B of the Act, 1938in regard to the bases of
premium;
4. Comply with the provision of Section 112 of the Act, 1938 in regard to recommendation
of interim bonus or bonuses payable by life insurer to policyholders whose policies
mature for payment by reason of death or otherwise during the inter-valuation period;
5. Ensure that premium rates of insurance products are fair;
6. Certify that the mathematical reserves have been determined taking into account the
guidance not issued by the Actuarial Society of India and any directions given by the
Authority;
7. Ensure that the policyholders reasonable expectations have been considered in the matter
of valuation of liabilities and distribution of surplus to the participating policyholders
who are entitled for a share of surplus; and
8. Submit the actuarial advice in the interests of the insurance industry and the
policyholders.
44
ACTUARIAL FUNCTIONS
ACTUARIAL FUNCTIONS IN CORPORATE OFFICE
The IRDA ensures that every insurance company has a team of actuaries headed by a chief
actuary. No life insurance company can carry on the business of insurance without an appointed
actuary. The appointment of the actuary is subject to the prior approval of the IRDA. The
insurance company may not be able to work effectively without the appointed actuary. The cost
of managing various risks is calculated by the actuaries. This is necessary for strategic
management of the companies. The actuaries have got various functions like valuation,
construction of mortality tables, etc. The actuaries are in demand not merely in insurance
industry but in every aspect of financial management, like the government departments, private
companies dealing with investments, banks and universities, to list a few. The actuaries are
required to certify certain liabilities (ex, the gratuity liabilities) of the registered companies every
year, without which the auditors may not accept the statements.
There is more emphasis on the functions of an actuary in an insurance organization. The

department of actuaries consists of several actuaries headed by one chief actuary. The chief or
important duties and functions of the actuarial department are as follows:
1. Designing the products: Products refers to the plans of insurance the insurer launches
for marketing. The products should give details such as, the person to whom it can be
sold, the age at entry, the age at maturity, the maximum and the minimum SA allowed,
minimum and maximum term allowed, whether bonus is available, the amount of
survival benefit payable, the frequency of such payments, any special policy conditions,
details of rider benefits available etc. In brief, the benefits of the products are to be listed.
The actuary has to recommend the product to the IRDA for the approval, which normally
insurer has to answer. Only after IRDA’s approval, the product can be released for
marketing from an announced date. Similarly, the actuary has to recommend the unviable
products the insurer proposes to withdraw from the market giving reasons for the same,
and after the IRDA’s approval, the date of withdrawal has to be announced.
45
2. Pricing the products: The cost per unit SA of Rs.1000 for a given term and age under
the policy is known as tabular premium. The actuary decides the tabular premiums for
various ages and terms of each class of insurance product; he also decides the rebates and
extras for various modes allowed under the plan and the extra premiums for any
additional benefit, the extra premium for the extra risk, etc. This exercise is known as
pricing the product.
3. Recommending the products to the IRDA: The IRDA has stipulated that the insurers
have to get the approval of the IRDA for introducing a product in the market or
withdrawing a product from the market. This is to ensure that the public is not at a
disadvantage. The premium chargeable for a new product should be competitive. The
reasons for withdrawal should be convincing to the IRDA.
4. Wording of the insurance contract: The actuary may advise the office in the drafting of
the policy bond giving the terms and conditions of issue of the policy.
5. The actuary has the powers to advice on investment matters of the company.
6. The actuary has the responsibility to advise the insurer on reinsurance matters.
7. The actuary is to ensure the solvency of the insurer at all times.
8. The actuary has to ensure the compliance with the provisions of various sections like
Sections 13, 21, 40B, 64V, 64VA and 112 of the Insurance Act, 1938. Section 13 deals
with actuarial report and abstract. Section 21 of the Insurance Act details the powers of
IRDA regarding returns. Section 40B of the Act gives details of ‘limitation of expenses
of management of the Insurance Companies’. Section 64V of the Act describes how to
value the assets and liabilities, while Section 64VA defines ‘sufficiency of assets’.
Section 112 of the Insurance Act says that the life insurer has got the power to declare the
interim bonus to policies which result in claim by death or claim by maturity.
46
9. Conducting mortality investigations: Mortality investigations mean that the deaths of

the insured persons are to be recorded to arrive at the rate of death. This table is called
mortality table. This process is known as investigation. The investigations are conducted
periodically by every insurer. The investigations are continuous and the mortality tables
have to be socio-economic factors. For this purpose, the size of the group and the time
period are considered to be near accurate in the results. If the group is smaller, then the
period may be longer. If the group is larger, then the period can be small. Different
classes of the insured lives are considered for the purpose. The mortality tables also are
different for average and substandard lives different for male and female lives. The tables
for males and females can be based for granting annuity policies.
10. Constructing Mortality tables: Mortality tables are constructed from the data taken for
the study or investigations. The tables may be different for different types of groups taken
for the study. The rate of death may relate to age, term, type of policy, type of lives
covered, types of risk, etc. (Groups are different for different level of risk).
11. Comparing mortality tables: Construction of mortality tables is a continuous exercise.

The mortality tables constructed subsequently may show a fall in the death rates. This is
so due to improvements in socio-economic conditions, medical advancements, and
educational levels. Hence, the mortality tables constructed subsequently can be compared
to the previous one to find out whether the bases assumed for charging the premiums
have changed appreciably and to enable the insurers to offer new products based on the
lower mortality rates and the changing needs of the customer.
12. Conducting annual actuarial valuation: The main purpose of conducting the valuation
is to find out whether the insurance company is having solvency of funds. Solvency
means the capacity to pay out the claims as and when they arise. Valuation is done either
prospectively or retrospectively. The process of prospective valuation involves projection
of the experience for the future. The possible financial surplus which is known as
valuation surplus is not a profit but will prove that the insurance company is working
profitably. This is a proof that the insurance company is working on sound principles and
47
the policyholders’ interest are safe. On the other hand, if the valuation results in deficit, it
does not mean that the company is working on loss. It only means that the premiums
charged are inadequate or that the policies are to be conserved. It may also mean that the
products are yet to be popularized.
13. Distributing the surplus to participating policies: The surplus is only an expectation of
profit and not a profit. Surplus is possible because of the premiums paid by the
policyholders. Hence, the Insurance Act, 1938 stipulates that at least 90% of the surplus
is allocated to the policyholders. The amount so distributed will be added to the policy
moneys payable at the time of final payment of the policy moneys. This is known as
reversionary bonus. The bonus allocated after each valuation is called vested bonus.
ACTUARIAL FUNCTIONS IN LIFE INSURANCE BUSINESS
While the main function of an actuary in life insurance has remained the same, viz. assessment
and valuation of mortality risk apart from other risks, it is the extent of risk selection and
methods of guarding against anti-selection which has become a subject of heated debate amongst
life insurance actuaries in developed economies. What lies at the centre of this discussion is the
vast advances in medical science and in particular in the field of genetics, which can throw much
more light on human vulnerability to certain fatal diseases than traditional medical tests. This
progress opens up tremendous possibilities in the medical selection of lives for the purpose of
insurance.
This certainly about the life span will obviously threaten the very existence of life insurance
which thrives on the uncertainty regarding the exact time of death and which motives a voluntary
sharing of losses among people with different life spans, or rather compels the many fortunate
people who happen, to live long to pay for those unfortunate few who happen to die early.
However, it is unlikely that the productive capacity of genetics will reach this limit of certainty.
Nevertheless the progress in this direction can have far-reaching consequences for the future of
life insurance.
48
The advances in genetic research have enabled detection of potential diseases or disorders. This
gives rise to two questions in life insurance context:
(a) Should an insurer conduct a genetic test on life proposed, to obtain additional information
relating to probable future mortality and also to guard against anti-selection by those who
already possess this information?
(b) Should any genetic information, even that which is already available, be used at all by the
insurance industry to charge higher premiums for those who possess some genetic
disorders?
On the first question, which is merely an extension of the basis arguments for and against
insurance selection, one has to weigh two opposite considerations, viz. need to guard against
anti-selection and benefit of such expensive tests relative to their cost.
Medical selection by the insurer is necessary and desirable both on grounds of ‘actuarial fairness’
i.e. charging premiums to different lives on the basis of their different levels of risk and for
financial viability of the insurance company.
The second question of whether genetic information should be used as basis for insurance rating
of impaired lives, however, is much more controversial for it raises not only financial or actuarial
issues but also wider ethical and moral considerations.
ACTUARIAL FUNCTIONS IN GENERAL INSURANCE BUSINESS
With the growing complexity of business operations and increasing technological development,
individuals and companies are coming face to face with newer and greater risks, e.g. risks of
computer breakdowns, satellite communication failures, financial suffered by professionals from
client litigation, etc. These risks provide increased opportunities of profitable business for
insurance companies and thus open up additional career avenues for actuaries.
Risk management has become an important managerial function in large business houses, where
a professional risk manager assesses the nature and extent of the company’s exposure to a
specific mix of risks and decides whether to retain the risk in house or to transfer it to an
49
insurance company. Nevertheless, even in case of risk retention, companies do seek other
services such as underwriting, actuarial and risk management advice from insurers. It is here that
the general insurance actuary has to demonstrate his competence not only in accurate risk
appraisal, but also in understanding the needs of the business manager, so as to build up a
mutually beneficial and long lasting relationship between the insurers and the business
community.
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BASIC ACTUARIAL CONCEPTS
The work of an actuary can be extremely complex and challenging. However, reduced to its
basics, it often involves the application of probabilities and the time value of money through
models that are designed to reasonably represent reality and assist in analyzing a particular
situation. A brief introduction to these concepts can provide the context for better understanding
the particular areas of work in which actuaries are involved in the insurance sector.
PROBABILITIES
Insurance is a business that is built on probabilities. Most insurance policies protect the
policyholder from the financial consequences of undesirable contingent events, such as death,
fire, or accidents. However, life annuities protect against the adverse financial consequences of a
desirable situation, which is the possibility that a person will run out of money because of living
longer than expected. In either case, it is impossible to predict exactly what will happen with
respect to a particular policyholder. However, as the number of policyholders with similar risk
characteristics increases, the outcome for them as a group can be predicted with an increasing
level of confidence. This predictability enables insurers to take on risks that are individually
highly unpredictable, and spread the financial consequences across many policyholders through
the premiums charged. Actuaries measure the risks that are insured against to determine their
probabilities of occurrence, sometimes referred to as frequency, and use these probabilities in a
wide range of calculations. For example, the probabilities of persons dying at particular ages can
51
be detailed in a mortality table, which can be used in calculating life insurance premiums and
liabilities to policyholders. For some types of insurance, it is not enough to know the probability
of an event occurring, because the financial consequences of the event could depend on its
severity. For example, one motor vehicle accident might require only minor repairs to the
vehicle, while another might totally destroy the vehicle and severely injure its occupants.
Therefore, actuaries need to understand the costs that might be involved if an event occurs. This
understanding of severity might be limited to knowing the average cost of an event or, more
usefully, by estimating the probabilities that the cost of an event would exceed various levels.
The simplest approach to using probabilities is called deterministic. In this approach, the most
likely frequency and severity probabilities applicable in a particular situation are used in the
calculations. For example, a mortality table may indicate that the mortality rate at a particular
age is 0.0025, and this rate is used in calculating the premium rate to be charged to policyholders
of that age. The deterministic approach typically produces a single answer in a particular
situation. However, even with a large number of policyholders of the same age, the actual
mortality rate at that age can vary from year to year. In fact, the mortality rates shown in a
mortality table are not certainties, but merely the averages of probability distributions of
mortality rates. The stochastic approach to using probabilities recognizes these underlying
probability distributions and uses them in the calculations. This is usually done by using the
probability distributions to generate many alternative scenarios of what might happen and
repeating the calculations for each scenario. The stochastic approach produces a range of
answers, with different probabilities attached to them. The above discussion has focused on the
probabilities directly related to the events that lead to insurance claims. However, there are many
other factors that can affect the cost of an insurance policy and for which probability analysis can
be useful, or even essential. Some of these relate to the behavior of policyholders. For example, a
policyholder may decide to pay a premium on the policy renewal date or let the policy lapse, or a
policy may provide a range of options from which a policyholder may choose at specific dates.
Other factors are economic in nature, such as the investment returns that might be earned by an
insurer, the expenses involved in the administration of insurance policies, and the rates at which
various types of expenses might increase over time because of inflation or changes in operating
efficiency.
52
TIME VALUE OF MONEY

In most businesses, a customer pays money to the business in exchange for a product or service
that is received either immediately or shortly thereafter. The insurance business is much
different, because a policyholder pays premiums in exchange for the insurer’s promise to make a
payment to the policyholder in the event of a claim. Claims can occur as early as the day a policy
is issued or, at the other extreme, more than a century later, in the case of a life insurance policy
that is issued on the life of an infant who is fortunate enough to live beyond age 100. The insurer
has use of the money during the period between the time it receives premiums and the time it
pays claims. The money is invested by the insurer and the income from the investments can
provide some of the funds needed to pay the claims. The longer this period of time is, the more
significant the effect of such investments on the cost of the insurance policy. Reflecting the
financial effects of the timing of various cash inflows and outflows is referred to as recognizing
the time value of money. Actuaries incorporate the time value of money in their calculations to
assess the net value of a stream of cash flows at a particular point in time. The point in time may
either be now or a date in the future. Determining the value of a stream of cash flows at a date in
the future involves accumulation with interest. For example, if an insurer collects a single
premium of US$100 and is able to invest it at an annual rate of interest of 10% for a period of
three years, and reinvests the interest it earns, it would have accumulated US$133.10 by the end
of the period.1 Determining the present value of a stream of future cash flows involves
discounting with interest. Discounting recognizes the fact that the present value of an amount of
money that is to be paid or received at a future date is less than that amount. This is because a
smaller amount, invested now, could earn enough interest during the period to accumulate to the
amount needed in the future. Therefore, discounting with interest is much like accumulation with
interest, only in reverse. For example, if an insurer expects to have to pay a claim of US$100
three years from now and could earn an annual rate of interest of 10% during that period, the
present value of the claim payment is US$75.13.
53
ACTUARIAL MODELS
Actuaries often use mathematical models in their work. Some of the models are very simple,
perhaps consisting of only one mathematical formula. Other models, such as those used to price
insurance products or test the capability of an insurer to withstand a range of adverse scenarios,
can be extremely complex. They can incorporate many mathematical equations, involving
hundreds of parameters about which assumptions must be made, and use vast quantities of data
about the policies and investments of the insurer. Many of the actuarial models are used to
project cash flows of various types and calculate the present value or future values of these cash
flows. The simpler models take a deterministic approach to the projections, while the most
complex models may take a stochastic approach with respect to at least the most significant
parameters. Three elements are common to almost all actuarial models. The first is that they
involve a methodology, in other words, an approach used by the actuary to analyze the situation.
Actuarial methodologies have evolved over time, for example, to take advantage of the
computational power of computers. The mathematical equations incorporated in the model will
be consistent with the methodology chosen by the actuary. The second is that they require that
assumptions be made about the various parameters that are reflected in the equations. The third is
that they use data about the situation in the calculations. The data may be actual information
about the insurance policies and investments of the insurer. However, in some cases, the data
may be hypothetical information, such as a possible portfolio of investments that the actuary is
testing for suitability.
54
IAI
AI is a statutory body established under The Actuaries Act 2006 (35 of 2006) for regulation of
profession of Actuaries in India. The provisions of the said Act have come into force from
10thday of November 2006, in terms of the notification dated 8th Novem
November
ber 2006, issued by the
Government of India in the Ministry of Finance, Department of Economic Affairs. As a
consequence of this, the erstwhile Actuarial Society of India was dissolved and all the Assets and
Liabilities of the Actuarial Society of India we
were
re transferred to, and vested in, the Institute of
Actuaries of India constituted under Section 3 of the Actuaries Act, 2006.
The erstwhile Actuarial Society of India (ASI) was established in September 1944. Since 1979
the ASI has been a Full Member of Int
International Actuarial Association (an
an umbrella organization
and is actively involved in its affairs. In 1982, the ASI was registered under Registration of
Literary, Scientific and Charitable Societies Act XXI of 1860 and also under Bombay Public
started conducting Fellowship level examination leading to profession
professional
al qualification of an
actuary, till then the accreditation was based on Institute of Actuaries, London examinations
(now Institute and Faculty of Actuaries.).
The Actuarial Society of India was established in 1944 to provide a Central Organization of
Members
bers of the actuarial profession in India for the purpose of elevating the attainment and
status as also promoting the general efficiency of all who are engaged in the pursuits of an
Actuary. It is the Indian Counterpart of the Institute of Actuaries, Lond
London.
on. Any person with a
high degree of aptitude for Mathematics and Statistics can become an Actuary. Generally, first
class graduates or post-graduates
graduates in Mathematics or statistics or those who had Actuarial Science
as an optional subject at the degree leve
levell will be in a better position to qualify as Actuaries. To
become a full-fledged
fledged Actuary, one has to clear, through self
self-study,
study, a series of Examinations
conducted by the Actuarial Society of India, Mumbai.
Since almost all actuaries in India qualified from institute of Actuaries, London, the bond
between the London Institute and Indian Society became stronger day
day-by-day.
day. The institute of
Actuaries, London always lends full support to the Actuarial Society of India.
55
The traditional field for actuaries was life insurance. But actuaries gradually entered into wider
fields like Pension, General Insurance, Health Insurance and Investment. The basic subjects
taught in the Actuarial courses are Mathematics, Statistics and Finance. At the higher level,
particularly at fellowship level, a student has to learn and master application of the basic
actuarial techniques. The method of training helps an actuarial student to acquire skill for
analyzing any type of complex problems.
To become an actuary one must obtain a fellowship by completing the examinations through one
of the following professional bodies:
1. Institute of Actuaries of England and Wales.

2. Institute of Actuaries of Australia.
3. Actuarial Society of India.
4. Societies of Actuaries of North America.
5. Faculty of Actuaries of Scotland.
In nutshell, Actuaries are the backbone of the insurance companies. They apply mathematical,
statistical and economic analysis to a wide range of practical problems, in insurance, investment,
financial planning and management. In short, they are disciplined problem-solvers. A creative
aspect of the work of actuaries is forecasting of future contingent events.
56
Objectives
1. Advancement of the Actuarial profession in India.
2. Facilitating research, arranging lectures on relevant subject’s reading papers etc.
3. Providing facilities and guidance for those studying for Actuarial Examination.
4. To promote, uphold and develop the standards of professional education, training, knowledge,
practice and conduct amongst Actuaries;
5. To regulate the practice by the Members of the profession of Actuary;
6. To promote, in the public interest, knowledge and research in all the matters relevant to
Actuarial Science and its application; and
7. To do all such things as may be incidental or conducive to the above objects or any of them. In
1989, the ASI started examinations up to Associate level, and in 1991,
8. 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;
9. 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;
10. 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
57
dissemination by other means of useful information and knowledge connected with Actuarial
Science and other allied subjects with special reference to Indian conditions;
11. To promote or to conduct work or research of interest to Actuarial Science or to the practice
of the Actuary;
12. 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;
13. To provide educational services and other facilities to those studying for actuarial
examinations;
14. 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;
15. 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;
16. To confer honorary awards and other distinctions;
17. To institute and award scholarships, prizes, medals and certificates;
18. 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;
19. 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
58
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;
20. 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;
21. To consider the actuarial aspects of legislation, existing and proposed, and to take such action
as is considered desirable;
22. To arrange for the compilation and publication of statistical data and of actuarial tables based
thereon;
23. 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
24. 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.
59
CRITERIA FOR BECOMING A STUDENT MEMBER
A person is eligible to be considered for admission as student member if he/she satisfies one of
the following five conditions;
1. Those who have passed 10+2 (H.S.C) or equivalent a) with at least 85% in
Mathematics/Statistics, b) with recommendations from two fellow Members of the
society c) having English as the medium of instruction in +2 or equivalent level.
2. Graduate or Post Graduate with subjects like Mathematics, Statistics, Economics,
Computer Science, Engineering, MBA (Finance) and alike. Besides a person would also
be eligible provided;
a. The total marks secured in the subjects coming under the classification of
Mathematical Sciences, taken together in all the years of the degree course are not
less than 55%.
b. The content of Mathematical Sciences subjects in all the years of the course taken
together is not less than 50% of the total content. This is measured by the ratio
which the maximum marks allotted to mathematical Science subjects in all the
years of the course bears to the total maximum marks allotted to all subjects
included in the examination of the entire course excluding languages.
c. The Medium of instruction at the Graduate/Post Graduate Level has been English.
3. Fully qualified members of professional bodies such as the institute of Chartered
Accountants of India, The Institute of Cost and Works Accountants of India and Certified
Institute of Financial Analysts of India and Fellow of Insurance Institute of India (passing
with Subjects 81-Mathematical Basis of Insurance and 82- Statistics) as also other
qualified persons like MBA to be considered on case to case basis.
4. All continuing Students of Institutes.
5. Faculty of Actuaries, UK, Society of Actuaries, USA, Casualty Actuarial Society, USA
and Institute of Actuaries of Australia shall be admitted on application being made.
60
SUBJECTS FOR THE EXAMINATIONS
Students must take 15 subjects in preparing for the actuarial examinations. These subjects are
grouped in CT series, CA series, ST series and SA series. There are 9 subjects in CT series, 3
subjects in CA series, 6 subject in ST series out of which the student will chose 2 subjects and 6
subjects in SA series out of which the student will chose 1 subject. These are as described
hereunder;
CORE TECHNICAL SERIES (CT)
Old Subject New Subject No. of

Subject Name Duration Marks
Code Code Papers
102 CT1 Financial Mathematics One 3hrs. 100
Financial and Financial
108 CT2 One 3 hrs. 100
Reporting
Probability and mathematical
101 CT3 One 3 hrs. 100
Statistics
1.5 hrs
103 & 104 CT4 Models Two 100
each
105 CT5 General Insurance, Life and One 3 hrs. 100
61
Health Contingencies
106 CT6 Statistical Methods One 3 hrs. 100
107 CT7 Economics One 3 hrs. 100
109 CT8 Financial Economics One 3 hrs. 100
- CT9@ Business Awareness Module - - -
* Subject will be set in two halves (i.e. one and half hour exam. each on old 103 and old 104
syllabuses) for two years as transitional arrangements.
@ CT9 will be assessed by online examination and in an attendance at a 2-day introductory
course. This is effective for a student who enrolled on or after 01-07- 2004 and has to be
completed within 30 months of enrolment as student.
CORE APPLICATIONS SERIES
Subject No. of
Code Papers
CA1 Core Applications Concepts consisting of
CA11 Paper on Assets (Corresponds to existing 301) One 3 hrs. 100
Paper on Liabilities and Assets – Liability
CA12 Management (Corresponds to generalized aspects of One 3 hrs. 100
302, 303 & 304)
CA2 Modeling One 3 hrs. 100
CA3 Communications One 2 1/2 hrs 100
SPECIALIST TECHNICAL SERIES
Old
New Subject No. of
Subject Subject Name Duration Marks
Code Papers
Code
- ST1 (From Nov Health & Care Insurance One 3 hrs 100
62
2005 Exam
Diet)
302 ST2 Life Insurance One 3 hrs. 100
303 ST3 General Insurance One 3 hrs 100
Pension & other Employee
304 ST4 One 3 hrs 100
Benefit
- ST5 Finance & Investment A One 3 hrs 100
- ST6 Finance & Investment B One 3 hrs 100
General Insurance Reserving and
- ST7 Capital Modeling Specialist One 3hrs 100
Technical
General Insurance Pricing
- ST8 One 3hrs 100
Specialist Technical
- ST9 Enterprise Risk Management One 3hrs 100
SPECIALIST APPLICATION SERIES
Old Subject New Subject No. of

Code Code Papers
SA1 (from year
- Health & care One 3 hrs. 100
2006)
402 SA2 Life Insurance One 3 hrs. 100
403 SA3 General Insurance One 3 hrs. 100
Pension & other Employee
404 SA4 One 3 hrs. 100
Benefit
SA5 (from Year
- Finance One 3 hrs. 100
2006)
401 SA6 Investment One 3 hrs. 100
63
Brief Description
Core Technicals
CT1 - This subject provides a grounding in financial mathematics and its simple applications.
CT2 - This subject provides a basic understanding of corporate finance, including a knowledge
of the instruments used by companies to raise finance and manage financial risk and to provide
the ability to interpret the accounts and financial statements of companies and financial
institutions.
CT3 - This subject provides a grounding in the aspects of statistics and, in particular, statistical
modeling that are of relevance to actuarial work.
CT4 - This subject provides a grounding in stochastic processes and survival models and their
application.
CT5-This subject provides a grounding in the mathematical techniques which can be used to
model and value cashflows dependent on death, survival, or other uncertain risks.
CT6-This subject provides a further grounding in mathematical and statistical techniques of
particular relevance to financial work.
CT7-This subject provides a grounding in the fundamental concepts of economics as they affect
the operation of insurance and other financial systems.
CT8-This subject will develop the necessary skills to construct asset liability models and to
value financial derivatives. These skills are also required to communicate with other financial
professionals and to critically evaluate modern financial theories.
CT9 - The aim of the Business Awareness practical exam is to provide candidates with an
understanding of:
• the business environment in which they will be working
• how to tackle business-related problems
• the basic legal principles that are relevant to actuarial work
• their professional responsibilities
• the need for lifelong learning
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Core Application
CA1-This subject will provide an understanding of the strategic concepts in the management of
the business activities of financial institutions and programmes. This will include the processes
for management of the various types of risk faced, and the ability to analyse the issues and
formulate, justify and present plausible and appropriate solutions to business problems.
CA2-
CA3-Communications consists of two parts as follows:
CA3 Part A – Written communication
To gain a clear pass in the examination, a candidate will be required to draft communications
intended
to be read by a recipient usually with some assumed business knowledge.

CA3 Part B – Oral communication
To gain a clear pass in the examination, a candidate will be required to prepare an oral
communication, with or without visual aids, intended to be received by a panel of actuaries
and/or non-actuaries with some assumed business knowledge.
Specialist Technicals
ST1-This specialist technical subject will provide successful candidates with an ability to apply,
in simple situations, the principles of actuarial planning and control needed in health and care
matters on sound financial lines.
ST2-This specialist technical subject will provide the successful candidate with the principles of
actuarial planning and control, and mathematical and economic techniques, relevant to life
insurance companies.
ST4-This specialist technical subject will provide the successful candidate with the ability to
apply, in simple situations, the mathematical and economic techniques and the principles of
actuarial planning and control needed for the operation on sound financial lines of providers of
pensions or other employee benefits.
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apply, in simple situations, the principles of actuarial planning and control to the appraisal of
investments, and to the selection and management of investments appropriate to the needs of
investors.
ST6-This specialist technical subject will provide successful candidates with an ability (at a
higher level of detail and ability and detail than in CT8) to value financial derivatives, to assess
and manage the risks associated with a portfolio of derivatives, including credit derivatives and
to value credit derivatives using simple models for credit risk.
apply, in simple reserving and capital modelling situations, the mathematical and economic
techniques and the principles of actuarial planning and control needed for the operation on sound
financial lines of general insurers.
apply, in simple pricing and reinsurance analysis situations, the mathematical and economic
techniques and the principles of actuarial planning and control needed for the operation on sound
financial lines of general insurers.
ST9-This specialist technical subject will provide the successful candidate with an understanding
of the key principles underlying the implementation and application of ERM within an
organisation. This will include governance and process as well as quantitative methods of risk
measurement and modelling. The student should gain the ability to apply the knowledge and
understanding of ERM practices to any type of organisation.
Specialist Applications
SA1-This specialist applications subject will provide the successful candidate with the ability to
apply knowledge of the UK health and care environment and the principles of the actuarial
practice to the provision of health and care benefits in the UK.
SA2-This specialist applications subject will provide newly-qualified actuaries with the ability to
apply knowledge of the UK life insurance environment and the principles of the actuarial
practice of life insurance to a UK life insurance company.
apply knowledge of the UK general insurance environment and the principles of actuarial
66
practice to providers of general insurance in the UK.

apply knowledge of the UK pensions and employee benefit environment and the principles of
actuarial practice to providers of pensions and employee benefits in the UK.
apply knowledge of the UK financial environment and the principles of actuarial practice to the
financial management of clients’ affairs.
SA6- This specialist applications subject will provide the successful candidate with the ability to
apply knowledge of the UK investment environment and the principles of actuarial practice to
the selection and management of investments appropriate to the needs of investors.
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ACTUARIAL VALUATION
A Statement of Actuarial Opinion Regarding Loss and Loss Adjustment Expense Reserves must
accompany insurers’ Annual Statements. To provide an unqualified opinion, the appointed
actuary must affirm that the stated reserves make reasonable provision for all unpaid loss and
loss expense obligations according to statutory valuation standards.
Almost all major insurers provide unqualified actuarial opinions. And most actuaries believe that
industry reserves are seriously deficient on a statutory basis. Economic considerations often
make “full value” reserves an inefficient business strategy, particularly for the long-tailed lines.
Marketplace price constraints, return on equity objectives, average durations of reserves, and
regulatory leverage ratios prevent some insurers from holding full value reserves. Insurance
management, seeking to optimize both net income and the benefits to policyholders, may request
actuaries to determine economically efficient reserve levels.
The appointed actuary faces an unusual ethical dilemma. State regulators rely on the actuary as a
professional expert to validate the reasonableness of reserves on a statutory basis.
Company managements rely on the actuary as a business manager to set efficient reserves that
optimize company performance and policyholder protection. The inconsistency of these two
objectives, and the lack of clarity in actuarial ethical guides, hampers the goal of reserve
adequacy that the actuarial statement of opinion is designed to enforce.
An actuarial valuation of a retirement plan is an estimate of a plan's financial position at a
specific point in time. During a valuation, an actuary takes a “snapshot” of the membership as of
a given date to determine the plan’s liabilities and funded status.
An actuarial valuation projects the expected cash flow of plan members’ benefits. Actuarial
projections are derived from a combination of judgment and science, based on assumptions about
the likely occurrence of future events that affect the outcome and duration of pension benefits.
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ASSUMPTIONS
Two types of assumptions are used in valuations—economic and demographic. Of the two,
economic assumptions usually have a greater impact on plan liabilities. Two key economic
assumptions are investment return—used to determine the present value of future liabilities, and
salary increases—used to project current pay until retirement. Demographic assumptions deal
with the likelihood of termination of employment, retirement, disability, or death at each age.
Actuarial assumptions are primarily based on past experience or standard tables. Recent experi-
ence should be considered but it is not the main factor in setting assumptions. For example, even
though salary increases and inflation have generally been low since the early 1990s, a much lon-
ger-term view should be considered. It is important to understand that a long-term view, from an
actuarial standpoint, is not ten years, but twenty or thirty years.
Assumptions can result in actuarial gains or losses. For example, if salaries increase by an
amount greater than that which was assumed, an actuarial loss will result. If salaries increase by
a lesser amount than expected, there will be an actuarial gain. It is important to note that how
assumptions work together as a group is more important to the overall valuation results than the
accuracy of an individual assumption. One assumption may somewhat overstate the actuarial
liability and another may understate it, but taken together, they may balance each other out.
Actuarial valuations are affected by many variable factors, such as rates of retirement, termina-
tion, disability, death and general economic conditions. Actuaries must apply their best judgment
when estimating how and when conditions are likely to change. Each valuation “trues-up” the
estimates from prior valuations. Over time, adjustments are made to assumptions, as needed,
based on plan experience.
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SCHEDULING VALUATIONS
Adherence to a schedule of regular valuations is likely to result in the early identification of

trends and appropriate adjustments being made on a timely basis. Periodic valuations enable a
retirement board to guard against an unexpected and sizable increase in a system’s funding
schedule and appropriation amount.
The Public Employee Retirement Administration Commission (PERAC) is required by Section
21(3) of Chapter 32 to oversee an actuarial valuation of each retirement system every three years.
The Governmental Accounting Standards Board (GASB) requires valuations to be performed at
least every two years for financial reporting purposes. PERAC believes that a schedule of annual
valuations is a sound business practice and a hallmark of a well-managed pension system. At an
absolute minimum, valuations should be performed every two years. If a retirement system per-
forms a valuation only every two years, PERAC strongly recommends that an interim valuation
be conducted during the off year. In an interim valuation, actual plan assets and an estimate of
liabilities are used to estimate the funded status of a plan.
The financial condition of a retirement system has a significant impact on municipal finances,
including the cost of borrowing. Rating agencies cite retirement issues as a determining factor in
establishing bond ratings. If a valuation is not performed and/or the system’s funding schedule is
not updated at least every three years, PERAC must determine the appropriation level for the
coming fiscal year on a conservative basis.
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THE ACTUARIAL VALUATION CYCLE

Generally, the actuarial valuation cycle may be classified into six phases:
1. Preliminary Review
2. Data Preparation
3. Asset Preparation
4. Valuation Specifications
5. Valuation Run and Summary
6. Final Report and Presentation
1. PRELIMINARY REVIEW
A preliminary review is common to all actuarial valuations. The actuary begins this phase by
familiarizing himself or herself with the most recent prior valuation report for the retirement
system, any actuarial work papers related to that report and the retirement system’s
correspondence file for the previous year. The actuarial work papers may have notes from the
last valuation that would supply information on unusual aspects of the actuarial valuation.
When reviewing last year’s correspondence, the actuary will review any issues pertaining to
the required annual appropriation.
2. DATA PREPARATION
A retirement system that is being evaluated should submit active member and retiree data, in
PERAC’s required record layout to PERAC’s Actuarial Unit, as soon as possible after the end
of the calendar year. A January to mid-February submission of data, as of December 31 of the
preceding year, is the most responsive. The goal is to produce valuation reports as early as
possible in the year. The later in the year a report is issued, the less meaningful it may be.
It is essential that the retirement system furnishes the valuation team with accurate, up-to-date
membership data. The date of birth, date of hire, salary, and amount of creditable service are a
few of the crucial data elements for each active member. The date of birth, amount of monthly
benefit and benefit option are a few of the crucial data elements for each retiree.
If a database has a large number of inaccuracies, the results of the valuation may be unreliable
and the validity of the study questioned. An actuary may have to make assumptions as to dates
71
of birth and hire, pay, and other missing information in order to complete a valuation.
However, it is highly problematic when an actuary is faced with making estimates for a large
number of missing or incorrect data elements. For example, if there are 500 active members, it
is acceptable for an actuary to make estimates of pay or creditable service for a handful of
members. But if the records of 100 members lack accurate values for one or both of these ele-
ments, the retirement board should clean up the data before the valuation is carried out.
Actuaries generally make estimates cautiously; if estimates are utilized extensively, it is more
likely that the actuarial liability will be overstated. An actuary can best determine a retirement
system’s true liability with accurate data.
3. LISTINGS OF QUESTIONABLE DATA ITEMS

When PERAC’s Actuarial Unit reviews a retirement system’s membership data, it prepares
listings of questionable data items. If data is erroneous, it is essential that corrections be
made in the retirement board’s database (not just in the copies of the files used by the
actuarial team) so that the error(s) will not surface again in future data listings. PERAC’s
actuarial software has been designed to provide warnings when certain data elements do not
appear to match established criteria. The parameters that we use in our reasonableness tests
do not change from year to year. For example, PERAC’s system will flag the current payable
amount for a retiree if the original amount of benefit plus COLAs does not equal the current
amount payable. The warning may indeed be triggered by an erroneous entry for original
amount of benefit. However, if the member has died and the beneficiary is receiving the
benefit or a Section 90C benefit has been granted, the data provided may actually be correct.
In such instances, the retirement board should simply annotate the data list and provide it to
the actuary. Retirement boards are encouraged to retain PERAC’s data listings. Just as
actuaries conduct a preliminary review of prior valuation reports before beginning a new
valuation study, so should retirement boards conduct a review of prior year(s) data listing(s)
before acting on data listings associated with a current valuation. Since PERAC may identify
the same record or records as being questionable each year, retirement board staff can save
time by referencing prior year’s documentation. It may indeed tell the actuarial team that the
same question(s) was raised about the same record(s) before and there is a valid explanation
about why an entry that appears to be wrong is actually right. Data clean up is a time-
72
consuming, labor-intensive task—for both retirement board staff and actuaries. It can often
represent as much as 75% of the total time involved in a valuation. PERAC strongly
encourages retirement boards to maintain up-to-date, accurate membership databases.
Retirement boards should consider periodically auditing their databases to identify missing
and/ or erroneous entries. Data maintenance should be viewed as an on-going responsibility
rather than an isolated, annual or biennial project.
4. ASSET PREPARATION
This phase includes the following steps:
1. Asset reconciliation
2. Actuarial value of valuation assets development (if applicable)
3. Determination of prior year asset gain or loss
4. The asset reconciliation phase consists of a review of the asset information presented in
the Annual Statement.
This phase includes a review of: the market value of assets by type of investment; allocations to
the Annuity Savings Fund, the Annuity Reserve Fund, the Pension Fund, and the Pension
Reserve Fund; benefit payments and appropriation amounts.
The assets of 25% of retirement systems are currently being appraised at market value in
actuarial valuations. The other 75% of systems use an "asset smoothing" technique to deter-
mine the actuarial value of assets. Retirement boards should discuss both strategies with their
actuaries. An actuarial value of assets smoothing methodology reduces the potential volatility
in market value from year to year by recognizing gains and losses over a five-year (or other)
period. The market value of assets can be erratic from one year to the next, but an actuarial
value approach provides a smoothing technique. The actuarial value of assets will not increase
as much as the market value in a good year, or decrease as much as the market value in a bad
year.
Asset gains and losses are determined by referring to the investment return assumption used in
the most recent prior valuation. If, for the year currently being evaluated, the actual value of
assets exceeds the expected value of assets, there is an asset gain. If the actual value is less than
the expected value of assets, there is an asset loss.
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5. VALUATION SPECIFICATIONS
During the valuation process, the actuary should make recommendations to the retirement
board about the assumptions to be used in the current valuation. The actuary may advise the
board to make changes in the assumptions that were used for the preceding valuation. After
consulting with the actuary, the retirement board should make the final determination about the
assumptions to be used.
6. VALUATION RUN & SUMMARIZATION

After the data has been “cleaned,” the actuary will run a valuation program that calculates and
projects liabilities. The principal valuation results are summarized and the following items are
computed and analyzed.
a. Unfunded Accrued Liability: The actuarial accrued liability is composed of several items.
For active members, this liability represents the present value of expected benefits at
retirement (based on estimated pay and service and the retirement plan’s benefit formula
that is attributable to service rendered to date). For retirees, this liability includes the
present value of payments that are expected to be made during the retiree’s lifetime and
that of his/her spouse, if applicable. The actuarial accrued liability less the retirement plan
assets produces the unfunded actuarial accrued liability.
b. Amortization of past service liability
c. Normal Cost: Normal cost or current cost is the present value of benefits that are expected
to be earned during the current year.
d. Comparison between current and prior valuations z Gain and loss analysis
7. FINAL REPORT & PRESENTATION

The Actuary issues a report upon completing a valuation. The contents of a typical report are as
follows:
a. Introduction and Actuarial Certificate
b. Summary discussion
c. Comparison of results with prior valuation
d. Summary of valuation results
e. Appropriation development for the current fiscal year Funding schedule(s)
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f. Information required by Auditors—GASB 25 (Governmental Accounting Standards

Board)Assets
g. Summary of system membership characteristics
h. Actuarial methods and assumptions
i. Summary of plan provisions
j. Glossary of actuarial valuation terms
The actuary meets with the board to present the valuation results. Generally, an actuary will
include the following elements in his/her presentation:
1. Results of the actuarial valuation

2. Actuarial assumptions and methods
3. Discussion of terms used in the valuation
4. Discussion of alternatives funding schedules and/or strategies.
Since the final report represents a completed stand-alone document until the next valuation is
conducted, retirement board members should be sure that their questions about the valuation
results are answered in a satisfactory manner. Retirement board members are more aware of their
membership and system characteristics than either PERAC or any private actuary can be. It is
incumbent upon them to raise questions about any aspect of the report that they find to be
incorrect, confusing or vague.
75
COMPARISONS ABROAD
Canada
Canada has adopted many of the features of the original U.K. Appointed Actuary model, but has
adapted the system to a different regulatory and legal environment and has expanded the role to
general insurance companies. Both life and general insurance companies are required to appoint
an actuary, and there is a high degree of involvement by the Canadian Institute of Actuaries
(CIA), of which the Appointed Actuary must be a member in good standing. The Appointed
Actuary is responsible for the calculation of the risk-based capital requirement (Minimum
Continuing Capital and Surplus Requirement, or MCCSR), and is also required to report to the
Board of Directors regularly on the results of dynamic capital adequacy testing (DCAT), along
similar lines to the dynamic financial analysis referred to above in the context of the U.K.
United States
The United States has not yet introduced a full appointed actuary system. On the life side the role
has changed in recent years from evaluating the liabilities in accordance with regulatory norms to
providing an opinion as to whether the assets are adequate to cover the liabilities. Cash -flow
testing, using prescribed investment scenarios, is required to be carried out on a quarterly basis to
ensure that, on a realistic basis, assets equal to the statutory liabilities are sufficient to enable
policy benefits to be paid out. The actuarial profession has played a significant role in the
development of risk-based capital requirements, which have been adopted in all U.S.
jurisdictions. A number of states have also introduced the concept of an “illustrations actuary” to
ensure that excessive benefits are not projected at the point of sale.
European Union
Significant changes have been taking place in insurance regulation in some continental European
countries, following the move to the concept of a single license to operate throughout the
European Union (EU). The “framework” directives that completed this process now prevent EU
supervisory authorities from exercising prior control on products or premium rates. This has
forced a switch from material to normative controls and has greatly increased the responsibilities
placed on actuaries in some countries.
76
Germany
In Germany new insurance legislation requires each life insurance company to appoint a
responsible actuary (Verantwortlicher Aktuar), who has to take professional responsibility for
ensuring the adequacy of premium rates and for ensuring that the principles of rating and
reserving which are included in the law are observed. The responsible actuary is responsible for
reporting to the board of directors on proposals for bonus distribution to policyholders and has a
whistle-blowing role similar to that of the U.K. Appointed Actuary.
Italy
Italy has for some years had a requirement for an actuarial opinion on the technical provisions of
a general insurance company. This opinion has to be provided to the auditor of the general
insurance company, as part of the process of establishing whether the accounts show a true and
fair view of the financial situation of the company. After several years of debate, it now seems
that an Appointed Actuary role will soon be introduced in respect of the life insurance business.
Belgium and the Netherlands

Belgium has introduced its own version of the appointed actuary system, for both life and
general insurance companies. The Netherlands has a longer tradition of actuarial professional
responsibilities in the area of designing and pricing products for life insurance and in respect of
non-life reserving. The Dutch actuarial profession (Het Actuarieel Genootschap) also has more
experience than most Continental European actuarial associations of developing postgraduate
education programs.
Japan
Japan had a tradition more closely akin to that of Germany, but has now introduced a form of
appointed actuary system (Hoken-Keirinin) as part of the deregulatory modifications to the
insurance law. The Institute of Actuaries of Japan has issued a standard of practice which was
strongly influenced by the U.K. standard.
77
France
An important exception to the general trend towards giving company actuaries greater
professional responsibility may be observed in France, where a rather different tradition has
grown up. Although France moved away from a detailed prior-approval system of regulation
several years before Germany, it has not considered it appropriate to give a specific role to the
insurance company actuary within the insurance law, other than a modest responsibility for
approving the use of mortality tables. Responsibility for proper pricing of products, establishing
prudent technical provisions and exercising sound and prudent overall financial management
rests with the company’s Chief Executive and the Board of Directors.
Switzerland
Switzerland has adopted the same terminology as Germany in the German-language version of
the new insurance law. The responsible actuary role in Switzerland is to be introduced for
general insurance companies as well as life insurers. Reinsurers will also be required to comply
and, if they are composite reinsurers, to appoint both a responsible life actuary and a responsible
non-life actuary. The actuary will be responsible for the integrity of the data needed for pricing
and for valuation purposes, as well as for calculating adequate premium rates, prudent provisions
and assessing the solvency margin requirement. He or she will also be required to monitor all
developments that could affect the financial position.
Other Countries
Outside Europe and North America, Australia and South Africa both have a long-established
professional role for the actuary in environments where supervision has always concentrated on
reserve adequacy and financial strength. Hong Kong, Singapore and Malaysia have appointed
actuary systems and place considerable professional responsibility on the actuary.
Other countries in East Asia do not have a strong professional role for the actuary and rely on
more prescriptive regulation. This is also the case in most Latin American countries and, to an
extent, in the countries in transition in Central and Eastern Europe.
78
Survey Results
1. Why are you pursuing actuarial science ?
Reason for pursuing actuarial science
30%
Interest in Statistics
46%
Salary
Different than other courses
24%
According to the survey results, maximum people pursue actuarial science because of their
interest in statistics. Rest 30% pursue this course for doing something different, i.e., different
from the regular choices of course and 24% for earning good salary.
2.What
What is your undergraduate major ?
Undergraduate Major
60
50 52
40
30
20 12 16
10 2 8 8
0
2
Undergraduate Major
Maximum people pursuing actuarial science belong to commerce background ,.i.e., 52% of
students. Rest are from different fields – actuarial science, mathematics, statistics, etc. this is the
best part of actuarial science where your undergraduate major background does not matter.
matter
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3.How
How many exams have you cleared before graduation ?
Exams cleared before graduation

70
60
50
40
30 Exams cleared before

graduation
20
10
0
None
1 Exam
2 Exams
3 Exams
4 Exams
Before completing graduation

ion , 64% students have not cleared any papers.
But 20% have cleared 1 paper, 7% 2 papers, 1% 3 papers and 8% have cleared 4 papers.
4.What
What is your current employment status ?
Current Employement Status

2%
Employed
Not yet employed
98%
Since the survey was of students, hence 98% people were not employed and only 2% were
employed.
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5.What is your area of focus ?
Area Of Focus
8%
6%
Property / Casualty
Health
19% Life
52%
Consultant
Finance
15%
People studying actuarial science are interested in different fields of work. Majorly ,i.e., 52%
have finance as their area of focus. Other areas of focus include fields like property or casualty,
health, life, and consultancy.
6. What employer type are you currently working with or you wish to work with ?
Employer Type
Insurance
50% 50%
Consultant
Majorly there are two types of firms an actuary can work with – Insurance and Consultant firm.
SO according to the survey results it is equal – 50% want to work with insurance firms and other
50% with consultancy firms
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7.From which institutes are you appearing ?
Institutes Applied
0% 0%
India
45% UK
USA
55%
Canada
Maximum people appear only from 2 institutes – India (Institute of actuaries of India) and UK
(Institute of actuaries). 55% appear fr
from
om UK institute because of a better pass rate and rest 45%
appear from India. Generally, most of the people appear from both the institutes.
8. Which country do you want to work in as an actuary ?
Desired Country to work
41% India
50% US
UK
9%
Half of the students want to work in India , their home ccountry.

ountry. 41% want to go to UK for
employment and only 9% want to work in USA.
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9. What is your expected starting annual salary ?
Expected Annual Salary

30
25
20
15
Expected Annual Salary
10
0
5 - 15 lacs 15 - 25 lacs 25-35 lacs 35-45 lacs More than 45
lacs
Everyone has a different expectation when it comes to salary. So 10% have expectation of 5-15
5
lakhs, 20% expect 15-25 lakhs, 24% expect 25-35lacs, 20% expect 35-45 45 lakhs and maximum
,i.e., 26% expect more than 45 lakhs.
10.What do you aim at ?
Future Aim
60
50
40
30
60
20 Future Aim
10 20
20
0
Completing the
Course Working
Both
The question is aiming at the future goal of the students. So maximum, i.e.,
., 60% of the people
want to complete the actuarial science course simultaneously with their job. 20% want to first
complete the course and then work and rest 20% want to work.
83
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 end- 2005, 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 liberalization 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 studied with the ASI and, in
1995, became an ASI associate. After a break, Singh qualified as an actuarial fellow in 1999.
Subsequently, he worked with a couple of private sector insurance companies as a senior
actuarial analyst and is now the chief actuary with Bajaj Allianz Life Insurance, taking home an
annual pay packet of Rs 40 lakhs (Rs 4 million).
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. ASI fellowships
can be completed in 5-6 years' time. Actuarial studies can be pursued alongside a full-time job.
With about 6 years of experience, a fellowship and work at a senior position, you can earn Rs 50
lakhs a year.
84
ACTUARY SHORTAGE HAUNTS INSURERS

The Insurance Regulatory and Development Authority (Irda) is concerned over the
shortage of actuaries in India, especially in the non-life insurance space.
"We don't have the actuarial capabilities in non-life as we have in life insurance. There is
also a shortage of data and of skill sets to correctly evaluate data before the rate is fixed," Irda
chairman J Hari Narayan said at a recent event in Mumbai.
An actuary is a financial expert who applies mathematical and statistical methods to
assess financial and other risks relating to various contingent events and then arrives at the rate
or premium that a person should pay to get a particular insurance cover. For this, the actuary
studies data such as the age profile of the insured, the geographical location, the income group
etc. The shortage of actuaries has meant premiums are incorrectly fixed, resulting in heavy
underwriting losses, Hari Narayan said. "India had high tariffs when they were fixed by the
Tariff Advisory Committee. The tariffs came down because of competition (once tariffs were
deregulated from January 1, 2007)," he said. The Irda chairman added that tariffs may now start
moving up again.
"This (fixing of appropriate rates) has taken two three years in other countries. We are at
the completion of the second year. Even if it takes a couple of more years for us, it is not really a
matter of concern... but we should watch out for that." Irda recently came out with a directive
asking general insurance companies to hire actuaries and place a higher role for them. "The
appointed actuary has to certify that each product is financially viable," the insurance regulator
said.
However, despite Irda's best efforts, the problem is not likely to be resolved in a hurry.
The reason is the severe shortage of experienced actuaries. The Institute of Actuaries of India
(IAI) identifies four levels of actuaries -- fellows, affiliates, associates and students. Fellows
form the highest rung and need to pass the entire course and have at least three years' experience
in an insurance company.
Affiliates are fellows from actuarial schools in other parts of the world who have come to
India. Associates are those who have cleared up to a big chunk of the course and students are
those who are in the process of clearing various examinations.
Of the 8,474 members of IAI, about 8,340 are students, mostly belonging to the age
group of 21-30. The number of fellows is just 203. This number had gone up slightly to 215-217
85
in 2007-08, but now the tally is back to 2002 levels. Of these fellows, 52 are residents of other
countries who are on deputation in India because of a tie-up that insurance companies have with
foreign insurers. And of the 151 Indian-resident fellows, 75 are in the age group of 66-90 years.
Asked why the number of fellows has remained more-or less constant, IAI president G N
Agarwal said, "Some fellows go out of the country with a mutual understanding that the institute
has with the other global institutes. Some may discontinue the membership after they turn 75-78-
year-old due to the age factor. Otherwise it (the number of fellows available) shouldn't come
down." Agarwal, who is also the chief actuary for Future Generali Life Insurance, is confident of
meeting the shortfall. "There are many people who can be employed. We have sufficient number
of people. Earlier non-life companies were not hiring, but we have members for them as well."
At present, every life insurance company employs about 8-10 students, 1-2 associates and
2-3 fellows, he pointed out. "A large company like LIC may have 50-60 associates or more and
about 1000 students all over India," Agarwal said. There are 21 life and 22 non-life insurers,
according to the Irda website. "General insurance companies earlier needed to have 1 fellow,
who may be a full-time employee or a consultant. But recently Irda has issued a circular asking
general insurance companies to hire at least 5-10 actuaries. After detarrifing, the role of actuaries
has become important in deciding the prices," he said.
But insurance industry consultants say actuaries who can understand all the businesses of
non-life companies - fire, marine, motor, engineering, health insurance etc -- may be few. R
Krishnamurthy, managing director at Watson Wyatt Insurance Consulting, said, "General
insurance companies are into a heterogeneous business and the actuaries who might understand
the risk in every business are rare. There is practical difficultly in finding people who will
understand every business, from motor, health, to fire or marine."
Getting one-to-one dedicated people is difficult and quite expensive for companies,
Krishnamurthy added. "Companies too do not want to incur that heavy a cost. Full-time actuaries
are the most expensive, may be after the CEO. In some companies, actuaries earn more than the
CEOs," he said. For the situation on ground to improve it may take a couple of years, consultants
point out. "The situation has improved a bit, still there will be shortage. A lot of a people in the
pipeline and it might take 2-3 years for people to fill the complete gap with experienced
actuaries," says Y V D V Prasad an independent insurance consultant, who formerly headed
product development at ING Vysya Life Insurance Company.
86
PREDICTING THE FUTURE ROLE OF ACTUARIES
Several shifts are underway that will result in significant changes in the way that insurance
companies use actuarial resources. An increase in qualified actuarial resources and a need to
move company actuaries into more strategic activities will offer opportunities that have
previously been unavailable. The exact timing and pace of this change is uncertain, but the
economics are so compelling that the time would soon arrive.
First, over 10,000 people in India are currently sitting for the actuarial exams. As the result of the
growth in the knowledge worker outsourcing industry, and the privatization of the Indian
insurance industry, actuarial studies are now much more attractive to qualified students. Scarcity
will be reduced as a result of this increasing supply of expertise.
Second, companies increasingly need to apply their internal actuarial talent to more strategic
activities such as sophisticated price modeling and risk management. Predictive modeling and
multi-tier pricing require constant attention and monitoring. Existing regulation in Europe
regarding Solvency consumes increasing amounts of resource. Both of these activities are best
performed in-house.
Leading companies will recognize that the traditional insurance product pricing process can be
separated into separate activities, some of which can be outsourced. For example, the
development of loss triangles and the updating of price indications are examples of discrete,
measurable work that can be effectively performed remotely. Once these tasks are complete,
internal actuaries can then review them and make final, proprietary pricing decisions. Moving
the tactical work offshore lowers costs, and frees company resources to focus on higher value
activities.
There are barriers to this transition. Tradition and inertia will slow adoption. It may take seven to
10 years, but the cost advantages and a need to redirect company talent will eventually result in a
shift the norm to a multi-source, onshore/offshore actuarial model.
R Krishnamurthy, managing director (distribution consulting), Watson Wyatt Insurance
Consulting, agrees that insurance liberalization 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,
87
especially in the employee benefit sector. Till now, this sector was largely handled by chartered
accountants, but changes will call for professional actuarial valuation."
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, which is
likely to raise the number of life insurance companies. The number of general insurance
companies is also expected to increase. The health insurance sector is also expected to get a big
dose of growth. 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.
88
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.
Every well-managed insurance company will have an actuary to continuously study its
operations and advice the management on the appropriateness of their policies. The periodical
valuation of a life insurance company, required to be conducted as per the provisions of the
Insurance Act, is the responsibility of the actuary. The premium proposed to be charged by the
insurer, has to be certified by the actuary before they are submitted for the approval of the IRDA.
89
BIBLIOGRAPHY
Websites :
1.IBEF
( http://www.ibef.org/industry/insurance-sector-india.aspx )
2.Institute of Actuaries Of India

( http://www.actuariesindia.org/ )
3.Institute Of Actuaries
( http://www.beanactuary.org/why/ )
4.Society of Actuaries
( https://www.soa.org/member/)
5.Casualty Actuarial Society

( http://www.casualtyactuarialsociety.org/ )
6.Faculty and Institute Of Actuaries

( http://www.actuaries.org.uk/ )
7.Exforsys Inc
(http://www.exforsys.com/career-center/career-tracks/the-role-and-responsibilities-of-an-
actuary.html)
8.TheActuary
( http://www.theactuary.com/topics/life-insurance/ )
9.Life Insurance Council

( http://www.lifeinscouncil.org/media-centre/archives/132-actuary-shortage-haunts-insurers )
10.Actuarial Eye
( http://www.actuarialeye.com/2014/06/11/the-role-of-the-appointed-actuary/ )
Books referred :
1. CT1 - Financial Mathematics
2. CT2 - Financial and Financial Reporting

3. CT3 - Statistical Mathematics
4. Actuarial Science Magazines
90

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Role Of Actuaries In Insurance

Limitations of the Research:

Scope of the Research:

Similarly after nationalization of General Insurance in 1972, General Insurance

DEVELOPMENT & GROWTH OF THE INSURANCE INDUSTRY IN

1. Formation of the Insurance Industry in India:

2. Nationalization of the Insurance Business in India:

3. Entry of Private Players:

Market Size of Indian Insurance Industry

Break-up of non-life insurance market in India

Life insurance density in India

Source: India Brand Equity Foundation ( www.ibef.com)

 practical, innovative and numerate.

HISTORY OF ACTUARIAL PROFFESSION

According to the committee of reforms in insurance sector (1994) at the time of

a. Life and general insurance

 Medical provider reimbursement analysis, including provider capitation, financial

e. Enterprise Risk Management (ERM)

QUALIFICATIONS TO BECOME AN ACTUARY

Some actuarial associations establish qualification standards that must be met by

TRAITS WHICH ALL ACTUARIES SHOULD POSSESS

ROLE OF ACTUARY IN INSURANCE COMPANIES

A/L Mgmt Assets

professionalism of the actuaries involved is an essential ingredient in the successful operation of

Asset and liability management

assist in determining the value of acquisition candidates. If a line of business is unprofitable,

ROLE OF ACTUARIES IN LIFE INSURANCE

It is universally acknowledged that the life insurance business depends fundamentally on

1. Designing and pricing contracts

2. Monitoring the funds required to provide the benefits promised.

3. Recommending the bonuses to be added to with- profit policies.

ROLE OF ACTUARY IN GENERAL INSURANCE

General insurance actuaries help provide expertise in three main areas:

THE ROLE OF THE ACTUARY WITH INSURANCE BROKERS

COMMUNICATION WITH THE BROKER

COMMUNICATIONS WITH THE CLIENT

PREPARING A LOSS PROJECTION

THE ACTUARY AS A RESOURCE FOR BROKERS

APPOINTED ACTUARY IN INDIA

RELAXATION OF QUALIFICATION OF ACTUARY

CESSATION OF APPOINTMENT OF APPOINTED ACTUARY

If a person cease to be an appointed actuary otherwise than on grounds of ineligibility or

A person shall be eligible to be appointed as an appointed actuary for an insurer, if he or she

 Ordinarily resident in India

THE ROLE OF APPOINTED ACTUARIES

POWERS OF APPOINTED ACTUARY

1. An appointed actuary shall have access to all information or documents in possession, or

3. The appointed actuary shall be entitled, --

DUTIES AND OBLIGATIONS OF ACTUARIES

2. Ensuring the solvency of the insurer at all times;

 any contravention of the Act; or

5. Complying with the Authority's directions from time to time;

6. In the case of the insurer carrying on general insurance business to ensure, --

7. In the case of the insurer carrying on life insurance business,--

 the insurer has contravened the Act or any other Acts;

DUTIES OF AN ACTUARY IN LIFE INSURANCE BUSINESS

1. Certify the actuarial report, abstracts and other returns;

ACTUARIAL FUNCTIONS IN CORPORATE OFFICE

There is more emphasis on the functions of an actuary in an insurance organization. The

7. The actuary is to ensure the solvency of the insurer at all times.

9. Conducting mortality investigations: Mortality investigations mean that the deaths of

11. Comparing mortality tables: Construction of mortality tables is a continuous exercise.