RBC (Non Life)

Actuary& You

10-12-2010N K ParikhEfficient ManagementSound UnderwritingExcellent Marketing which produces resultsLuck

Ingredients of SuccessLuck -external, environmental, attitudinal -political attitudes, social attitudes, clients attitudes, market movements including competition, technological changes

Directors and Officers liability policy where the perils included are:Allowing a company to continue operating in circumstances when it should have been declared insolventAny act resulting in the insured being declared unfit for his or her roleAllowing false financial statements to be published.

Lengthy Reports

Valuation affects the incidence and quantum

Why Actuaries are highly paidSupply and DemandWild and Sane Slog for many years Quality Values

Quality ValuesLong-term thinkingUnderstanding of data and modelsMulti-dimensional thinking Problem-solving abilityContinuing Professional DevelopmentSkilled in the 2 principles of actuarial science The first working principle of Actuarial Science - what gets measured, gets managed and more importantly priced Models 36-24-36

The second working principle - E Peretia Ratio or the use of past experience to reason solutions for future.

Technical AspectsGeneral Insurance predates ActuariesEvents overtook New risks with industrialisation nuclear, satellite, terrorism, engineering, professional indemnity, LOP, Nature of risk magnitude of risk changed compare World Trade Centre. Other factors - Competition, rate cutting, investments, consumerism, PRE, high inflation, change in outlook, globalisation, regulatory restrictions. Quantitative data, Statistical Theory, computers, storage devices the actuary arrived on the scene. Without him, priced out of the global market?

Actuary in 2 packages Consultants and In-house ActuaryConsultants - Partners-in-progress In-house Actuary - Cause-of-progress

What is Insurance Insurance is a technique of sharing of risks or spreading of losses. In the words of the Elizabethan Act of 1601, by means of which policies of assurance.. the loss lighteth rather easily upon many than heavily upon few.

- Insurances of rare risks , granting of NCD & experience- ratingRare Risks the nails of an artist or the eyelashes of an actress, the legs of a dancer, the tongue of a taster, disappearance of a TV artiste, cutting a sorry face insurance of a speaker or even the insurances of sputniks and satellites and the like.

NCD

Experience Rating 60% 7.5%.

The service that insurance performsBest of both the worlds 400 Insurers

2 problems posed

Risk Actual - ExpectedCyclical Nature of Risk - Life on this planet

working of General Insurance Staff

working of General Insurance TrainingMotivational Literature CounselingTo speak on - -What life has taught me -My Obituary -Underwriting considerations for rating of a rare risk, like say, cutting a sorry face insurance of a speaker.Programmed Learning Text-books

18

Underwriting Considerations for writing a Rare Risk - cutting a sorry face insurance of a speaker(responses received at an earlier Training session)

Insurable Interest - Speaker or the Organisation or Both. Venue?Open Policy or Individual special contingency policyAssessment of the Risk Applause Quantified by Number of claps and hackles.Third Party Risk Personal Injury risk to the speaker or organisersPast ExperiencePartial ClaimsMoral HazardsSalvageMedical Examination Fitness ConditionAbandonment Man made or Natural causeAbandonment in betweenCover Worldwide CurrencyCancellation due to various causesConsequential Loss Speaker - Organisers VenueClauses to be attached drafting of the policy.DeductiblesExtempore or preparedClaims Minimisation to smuggle in 5 to clapReinsurancePremium 50 per 1000?

Prize * for anyone extending the List to 25 or more put it in proper order and add some notes explaining the u/w consideration 2 pages *FOUNDATIONS of Casualty actuarial science Fourth Edition Part I & II

working of General Insurance cont..Development Officers on the Administrative side remunerated by Salary and Profit Commission. -The officer/agents developed a stake in good business. -Quality and Quantity of business increased. -Frauds disappeared. -Policy holders dissuaded by the development officers from claiming things not payable. -Awareness increased that the insured did not pass on junk business. - Suddenly the approach changed - the development Officer assumed the role of an underwriter

20working of General Insurance cont..Miscellaneous Credit card business and warranty businesses .Payment of premium within 60 days.Persistency ratio Reinsurance expertise and reinsurance capacityRetentions

AccountingCash Basis Accounts on three year basisFrom cash to accrualTechnical ReservesOutstanding claimsUPR URR /AURR - Premium Deficiency ReserveLegal ClaimsClaims Equalisation ReservesIBNER IBNR

22IBNERS.No. Sub-Class Claim No.Provision as on 31-12-2008 01-01-2009(1)(2)(3)(4)1FireF/..../ 234...1998MotorM/./.1999Motor2000Motor ________TOTAL3,000,000

IBNER cont.S.No. Sub-Class Claim No.Provision as on 31-12-2008 01-01-2009Amount paid during the year 09 / Outstanding at the end of the year 09 forDifference (4) - (5) with sign + / -(1)(2)(3)(4)(5)(6)1FireF/..../ 234...1998MotorM/./.1999Motor 2000Motor ________ ________ ________TOTAL3,000,000

IBNER cont.Claim No.Provision for as on 31-12-2008 01-01-2009Progress during the yearDifference(1)(2)(3)(4)11000paid for 1050-5022000paid for 827117333000repudiated - paid for 0300044000outstanding for 6780-278055000No development 50000TOTAL15000136571343 over provisionDifference = 15000 - 13657 =1343 - overprovision

IBNRNon-mathematical and mathematical techniques Compare the actual past results for the last 3-5 years and take the highest percentage or draw a graph and project the trend.Mukerjee committee Report in India based on the NEP classwise.Public Sector Undertakings in Indias method based on the Claims Outstanding.Triangulation/ BF /Average claim amount and Average no. of claims/ Expected loss ratio - statistical.The emphasis has shifted from IBNER/IBNR - holistic approach - reliance is placed on Risk Management models. If the companies close their accounts after 4 months, bulk of the IBNR would have been reported. By not providing for IBNR every year - only difference is the error.The various methods result into a range of values. Hence before finalizing the IBNER/IBNR, the other non-mathematical factors taken into consideration are:Whether the Company declaring dividend for the last 3 years.Whether the Company making U/W profit on a stand alone basisWhether the Company be making U/W profit only after taking proportionate credit for the investments of Technical reserves.Whether the Company be making profit after taking the credit for full investment income. Finally the Actuary takes a middle path to finalise. actuaries religious at heart - believe in practicing compassion - He wants a living thing to go living, he wants a going concern to keep going.

26Outstanding Claims General observations Claims outstanding for more than 2 years - Claims Clearance FortnightsMotor Accident Claims TribunalOn the Spot Settlement SystemClaims Minimisation Department - Cover for Motor Own Damage - maximum amounts for various surgical operations

27General additional RecommendationsPre-payment of premium Dividend Equalisation ReserveRating by an accredited international agencyFinancial Condition report10 years summarised statistics in every Balance sheet

28Actuary can help Pricing, Reserving, modelling. Underwriting/Administration/Development/ Expense investigations/ Investments/ Catastrophe Modelling and what notIdeal Risk Management Future of General Insurance Life Insurance - a special and much simplified case of General Insurance?Future of Actuary

PrayerTo wish everyone happiness, good health, good fortune, and no suffering from pain or misery

Amen !

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