actuary india may 2012

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M A Y 2 0 1 2

V O L . I V

I S S U E 5Pages 32 ` 20

For Private Circulation Only

Celebrations2012 Actuarial Gala Function

and Awards (2012 AGFA)

Institute of Actuaries of India,

Staff performance


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3The Actuary India May 2012

C O N T E N T S

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4

C O N T E N T S

FROM THE PRESS• FSB - Financial Stability Board reports to

G20 on progress of nancial regulatory

reforms

• IAA- The IAA Participates in thePrivate Sector Taskforce of Regulated

Professions and Industries and Makes

Recommendations to the G-20

FACE TO FACE WITH• Bikram Bordoloi – ACET Candidate from

North East India

• Frank Munro - Chief Actuary at Aviva NDB

Insurance Plc, Sri Lanka

COUNCIL ELECTIONElection to the council forthe period 2012 – 2014

FROM THE DESK OFAdministrative Ofcer – Gururaj Nayak

BOOK REVIEW• Bootstrap leadership: 50 ways to

break out, take charge, and move up

by Steve Arneson –

Reviewed by Nelius Bezuidenhout

• Insurance risk and ruin by

David C.M. Dickson –

Reviewed by Udbhav Gupta

CAREER OPPORTUNITYVacancy for Manager, Actuarial services

and various junior level openings at

AXA Business Groups

5

7

Disclaimer : Responsibility for authenticity of the contents or opinions expressed in any material published in this Magazine is solely of its

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21

18

FROM THE CHIEF EDITORNick Taket discusses the prospects for the

insurance industry.

FROM THE PRESIDENTLiyaquat Khan discusses governance &

leadership of IAI and talks about GCA.

REPORTAGE• 8th Seminar on Current Issues in

Retirement Benets (CIRB)

by Sandeep Devasthale

• ICAI WIRC Seminar on Actuaries

by Shweta Shah and Vishal Narang

LETTERS FROM READERS

FEATURES• A ramble through the African Pensions

Jungle by Tapiwa Maswera

• AM’s Best’s Microinsurance Market

Review: The Potential of Microinsurance

• Looking around

by Vinod Kumar

COUNTRY UPDATE

• The Insurance Sector of Sri Lankaby Frank Munro

• Mauritius - Actuaries in paradise

by Vanisha Pursun

26

20

31

11

24

28


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4 The Actuary India May 2012

FROM THE CHIEF EDITOR

T he past year has proved to be one of mixed fortunes for the industry which employs most of our members.

In 2011-12, the non-life insurance industry saw handsome premium growth of 23% over the previous

year, with the gains being fairly evenly split between the public and private sectors which grew at 22% and 25%

respectively.

By contrast, the life industry’s weighted new business premium reduced by 3%, with the Life

Insurance Corporation demonstrating yet again what a powerhouse it is by growing by 8%,while at the same time the private sector shrank by 18%.

For the life market, there have been some major shifts in the types of business sold. Individual

single premiums dropped by a massive 49%, while group single premiums have risen by

26%. Overall new regular premiums have remained roughly at, but with a large shift of this

business from the private sector to the LIC.

Since 2008 the life industry has been beset by a series of difcult circumstances, and it is

still hard to see when it will be able to put these behind it and turn the corner.

GDP growth estimates for the current year have been moving steadily downwards to around

7%, and while this is good by global standards, it is sluggish by Indian standards.

The direction that interest rates are headed is still uncertain. With the economy slowing the corporate sector

has for some time been asking for rates to come down. But the government’s large borrowing programme, the

return of inationary pressures and the Rupee’s recent weakness suggest that there will be strong incentives

to maintain current interest rates.

In this environment it is difcult to see where increased demand for life insurance products will come from.

When the downturn rst came in the life industry some thought that it was just a passing storm, that all they

needed to do was keep their heads down and the storm would soon pass. However, it’s proving to be quite a long

depression, so perhaps it is time to consider the classic Jack Nicholson line “What if this is as good as it gets?”.

At some point we have all had to accept the wisdom of working with the world as it is, instead of demanding that

the world should change to suit us.

But we should always look on the bright side. So we should be thankful we are not in the position of many or

our colleagues overseas who are trying to grow their market while their GDP growth hovers around zero, and to

maintain their margins while interest rates remain in the 1.5% to 2.0% range.

Nick Taket

T H E C H I E F E D I T O R

F R O M


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Governance and Leadership are the two words that do occupy our thought process implicitly or explicitly,as some of us engage in discharging our responsibilities within the IAI that we have chosen for ourselves:voluntary and non-remunerative. Those who serve on the Council, the twelve persons having been

elected through electoral processes and some eighty plus appointed by the President on the fteen AdvisoryGroups fall in this category. Unlike many other mature actuarial bodies such as the IFA, IAAust, CAS or SOA, theIAI though long established (in 1944) is small and requires the voluntary non-remunerated persons to serve onthe Council and Advisory Groups. This has consequently its own stress and strain.

The Governance is through the Council (in ASI days called Executive Committee) and the twelveelected out of fellow members are supplemented by the four nominated by the Governmentof India, in the Ministry of Finance, Department of Financial Services. It’s another matter thatwe never had more than two, one being the Joint Secretary (Insurance) from the Departmentof Financial Services and one from the IRDA; the latter however has not been nominated since2nd June, 2011.

The rst Council of twelve elected in 2008 had four exiting in 2010, and out of the remainingeight four will exit in September 2012, when the new council meets rst time after the electionprocess to elect four new ones will be over. The Council in its meeting held on 5 th May, 2012decided as per rules in this regard to exit A D Gupta, K.K. Wadhwa, T Bhargava and Anil

Kumar Singh. The electoral college, consisting of Fellow and Associate members existing as on 31.03.2012and remaining eligible to vote when the voting begins, will elect by process of ballot paper the four out of thevolunteers who put themselves up for election through laid down procedures. Much that happens as activity ofthe Institute in the two years that a President gets, mainly through the President, is impacted and inuenced bythe Council, though the dynamism, vision and energy that a President brings in makes a difference.

The election to the Executive Committee of the Actuarial Society and now the Council of the Institute has neverbeen un-interesting throwing up quite a lot of heat and dust, if you like!

The electoral process kicks off this month.

The Global Conference of Actuaries (GCA) has been somewhat an obsession with me. Right from the 3rd GCA

in February, 2001 – the GCA name was given then, though retrospectively – till the 14 th GCA in February, 2012,I have watched about all and been part of six of these having been President at the time when these were held.The event has immense potential of throwing up learning points if one keeps ‘ears and eyes’ open. Getting feedback through participant surveys post-event is a very effective tool and we did have good learning points outof 13th GCA surveys which inuenced many aspects of the 14 th GCA, besides impacting the Institute activitiesin many ways. The feedback Survey of 14th GCA participants was over last month and we are getting intounderstanding what the vox-populi wants to say. Some to quote;

The 15th GCA dates:

Q 8 :- What dates would you like the 15th Global Conference of

Actuaries to be held over?

30%

49%

21%

10-12 Feb '13 17-19 Feb '13 24-26 Feb '13

FROM THE PRESIDENT

T H E P R E S I D E N T

F R O M


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The 2012 AGFA:

The 2013 AGFA:

Awaiting to share with you more feed back in the next issue of the Actuary India.

Let us join hands to make IAI a globally well recognised professional organisation developing enduring thought leadershipin managing uncertainty of future nancial outcome.

Regards

Liyaquat Khan

T H E P R E S I D E N T

F R O M


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8 TH SEMINAR ON

CURRENT ISSUES IN RETIREMENT BENEFITS (CIRB)

T

by Sandeep Devasthale

Organized by : Institute of Actuaries of India

Venue : Hotel Sea Princess, Mumbai

Date : 28th April 2012

About the Author

[email protected]

Sandeep Devasthale is Deputy ChiefActuary currently working with SBI Life.

he 8th Seminar on Current Issues inRetirement Benets was organized

to keep the industry updated about theissues faced by all the stakeholders

such as Auditors, HR Personals,Employer and Actuaries etc. The majorissues discussed in the seminar wereproblems encountered while setting

up of the assumptions for valuing theRetirement Benets and recent changesin Financial Disclosures especiallythe Schedule VI. The session helpedto bring all stakeholders on the same

platform and discuss the key issues soas to arrive at some workable solution.

In the inaugural address, LiyaquatKhan President, Institute of Actuariesof India, informed about the initiative

taken by Institute for India to conduct

similar sessions at other placesother than Mumbai and Delhi. Thishas helped reaching out to a lot ofActuaries and Other Professionals

located in different parts of the countryand update them about the recentdevelopment in employees’ benets.He also emphasized on the professionalconducts to be followed while providingactuarial services. He pointed out thatActuaries should understand whatclient wants as regards valuation of

Retirement Benets and client alsoshould understand what Actuaries aredoing. He also mentioned that timehas come for the Institute to promoteitself in other countries especially inSouth Asia and also should think about

Branding itself as one of the Global

Actuarial Institute.

In the rst session on “Exempt ProvidentFunds : Understanding the impactof implied guarantees”, the speaker

Anuradha Sriram , Benets Director –Towers Watson, touched upon variousaspects applicable to quantifying theimplied guarantee. She explained

the topics covered in GN 29 includingvarious methods that can be adoptedto calculate the guarantee. The major

issue in calculation of the guarantee

deterministically is setting up theassumptions especially the guaranteerate oor that will be applicable in future.

The next session was on the currentchanges as regards on “Schedule VI”.

Mayur Ankolekar, Consulting Actuary –

Ankolekar & Co, explained the logic andalso the formulae to the participants

how to bifurcate the Retirement BenetLiability between Current and non-Current. The Schedule VI changes werediscussed for funded and non-fundedschemes and also the applicability ofthe same along with AS 15 to variouscompanies. There was discussion on thefunded gratuity plan whether employer’sobligation would be limited to requiredcontribution or payment of benets.

Arpan Thanawala shared his thoughts

in session three on topic “AS 15:Employee Benets – a journey throughdetermination of values”. He discussedmainly the issues not taken up in

AS 15 and about non availability of

any guidance on some of the issues

mentioned in AS 15.

Post-lunch session started withRound-Table discussion on “ActuarialAssumptions Setting – Approachesand Impacts”. The Panel Members

were P. Ramesh, Chairman – Deloitte,Saket Singhal – Practice Leader,

RFM – AON Hewitt, J.S. Salunkhe,Advisor – Mercer, Paritosh Basu, GroupController – Essar Group and SandeepThacker, VP (Finance, Admin and HR) –Commonwealth Bank of Australia.

R. Ramesh in his opening remark

mentioned about the heavy dependencyon Actuaries for measurement and

disclosures of Retirement Benetsin Financials. Measurement and

Mayur Ankolekar

Arpan Thanawala

Anuradha Sriram

P. Ramesh

R E P O R T A G E


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disclosures requires assumptions.Assumptions are a matter of judgment and have a great impact onmeasurement. He showed his concernabout the impact on Financials everyyear due to increase or decrease in

valuation of Retirement Benets.Paritosh Basu mentioned about the

need for collaboration on the part ofall stakeholders to come together to

stabilize the assumption. The change

in the Employee Benet has nancialimplications hence employer shouldhave a say in setting assumptionsand impact of change in assumptions.J. S. Salunkhe emphasized some ofthe factors such as Salary Escalations

and attrition rate of employees is undercontrol of the Employer. The settingassumptions should be the responsibilityof the Employer and Actuary will assistthe employer to choose the rightassumptions that are consistent with

respective Guidance Notes and AS 15 jointly. Saket Singhal suggested that

Employer, Auditor and Actuary shoulddetermine the required assumptions.He opined that the relation between the

discount rate and other assumptionsis more important than just discountrate alone. Sandeep Thacker felt

that the assumptions should be trueand fair from Company’s point of viewand in the interest of investors. Healso felt that it is often very difcult toexplain the economic and demographicassumptions set in valuation to the topmanagement.

During this whole discussion it was

felt necessary that while settingassumptions all stakeholders shouldcollaborate and then nalize theassumptions. The change in liabilityof Retirement Benets can be usedas a tool for CTC management for the

organization to minimize volatility on

Financial Statements.

In the fth session, Saket Singhal shared his experience and viewson Issues around employee benetliabilities and treatment there of at the

time of “Sale, Purchase, Mergers andAcquisitions”.

Sandeep Srikhande, SVP & Head ofGroup Insurance – Kotak MahindraOld Mutual Life Insurance, presentedfeatures of various Group Products

available in the market.

The seminar ended with vote ofthanks by Suresh Sindhi. He thankedthe Institute for organizing such an

informative seminar and participantsfor their valuable time and inputs.

Paritosh Basu Sandeep Thacker

Saket Singhal

Sandeep Srikhande

Suresh Sindhi

Ms. Cavoski is the Certied actuary at Kompanija Dunav Osiguranje ADO. She is a Member of the SerbianActuarial Association (a full member of the IAA) as a president of the Superior Council and an individualmember of the IAA (Actuaries without borders - AWB).

SVETLANA CAVOSKI

VISITED

IAI OFFICE ON

4TH MAY 2012

R E P O R T A G E


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R E P O R T A G EICAI WIRC SEMINAR ON ACTUARIES

T he seminar covered topics likeActuarial Approach to EnterpriseRisk Management, Stock OptionModels, Employee Benets and Non-lifeReserving.

It started with an inaugural speech byLiyaquat Khan, President IAI. He talkedabout the importance of the Actuariesand Auditors working closely to benettheir stakeholders and the public atlarge. He also briefed the audience onhow the actuarial profession has grownin size and importance.

Session 1: Actuarial Approach to

Enterprise Risk Management

The rst session was presented byRajesh Dalmia, Hon. Secretary, IAI. Hespoke about the ERM framework whichcaptured the critical building blocksthat were identied from the successful

implementations in the insuranceindustry.

v Overall Governance Arrangements.

v Decision and Planning Support.

v Risk Identication.

v Risk Assessment & Measurement.

v Risk Monitoring & Management.

v Risk Reporting & ManagementInformation.

v

Data, IT, Infrastructure.

v Policies, standards, people, culture

He also threw light on the concept ofEconomic Capital’ – The amount ofcapital required to keep the balancesheet solvent on a going concern

basis under a stress event. He listed afew stress events like Enterprise risk,Underwriting risk, Market risk, Creditrisk, Operational risk etc.

These risks can be modeled using

techniques such as Dynamic FinancialAnalysis, Financial Condition Report,Value at risk (VAR) or Tail VAR, Interest

by Shweta Shah and Vishal Narang

Organized by : The Western India Regional Council of the Institute of

Chartered Accountants of India.

Venue : ICAI Bhavan, Mumbai.

Date : 21st April 2012

[email protected]

About the Authors

[email protected]

Shweta and Vishal are Studentmember of insttitute of Actuaries of

India.

rate models, Credit risk models,

Scenario analysis etc.

He said to achieve the desired futurestate and maturity level an executionplan can be utilized. It may start withlaying the foundation of ERM programwith robust governance frameworksupported by an identication of riskand setting a risk appetite agreed bysenior management and key functions,

followed by prioritization of risks thatmatter, quantication of risk and arrivingat a risk prole and ultimately agreeingon a mitigation plan. Once the planhas been agreed and implemented thesame has to be consistently embedded

as business as usual.

Session 2: Reserving in Non-life

Insurance Company

The second session was presented by

Mehul Shah, Secretary, Advisory Groupon Non-life Insurance, IAI. He startedby showing a typical cash-ow of ageneral insurer. Then he listed downvarious types of reserves e.g. UnearnedPremium Reserve, Case Estimates /Reserves, Incurred but not reported,Incurred but enough reported, PremiumDeciency Reserve, CatastropheReserve. He explained the life cycleof a claim reserve. It showed how thereserves were created from the accidentdate to recoded date to settlement date

and nally how the claim is closed.After this he gave a brief on Principles(Actuarially Sound, Inherent Uncertainty,

and Purpose of Reserving) and Methodof Reserving (Uniform Earning Pattern,Marine Insurance, and Uneven Earning

Pattern). He showed how to estimateIBNR/IBNER by the method of triangles.He spoke about the reserving trends inIndia.

The following were the key points:

v Provision as percentage of NEP hasgone up to 72% from 65% in case ofpublic sector companies.

v

For Private sector, provision aspercentage of NEP has gone downto 58% in FYE 2010 as compared to66% in FY2006.

v Given that the premium rates havewitnessed reduction in the rangeof 20% - 90%, the above trendsmakes us believe the relaxations inthe reserving strength

Session 3: Share Option Models

The third session was presented byMayur Ankolekar, Consulting Actuary.

An option is a contract manufacturedfrom a replicating portfolio comprisingof theta shares and cash. No matter

how the portfolio moves during aperiod, other things being constant,an option writer will never suffer aloss. He explained how the Binomialmodel and the Black-Scholes modelcan be used for option pricing. Binomial model is a mathematically

simple, but surprisingly powerfulmethod to price options. If thevolatility is known, the size of upand down jumps can be estimated. In Black-Scholes model he started byderiving the Black-Scholes differentialequation using Ito’s lemma followedby derivation of the Black -Scholesoption pricing formula. This involvedplenty of calculus. He showedvarious graphs which all showed that

normal distribution was not the besttted model and this is the majordrawback of the Black-Scholes model. He then compared the two models andexplained their limitations. Both models


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assumed no arbitrage and zero trading

costs and taxes.

Session 4: Indian Accounting

Standards: AS 15 and Revised

Schedule VI

The fourth session was presentedby Akshay Pandit, of M/s KAPandit, Actuaries and Consultants.

In his presentation he talked aboutthe actuarial assumptions, bothdemographic (e.g. mortality, attrition

R E P O R T A G E

and retirement rate) and nancial (e.g.Discount rate, salary escalation rate andExpected return on plan assets) whichthe actuary and the company needs tomake and how they lead to actuarialgains and losses. He showed how eachassumption change would affect theliability. Apart from that he showedhow the disclosures are to be made.

Finally he briefed on the revisedschedule VI. Schedule VI requires theshort term liability to be disclosed along

with the total gratuity liability. He alsoexplained how the current and non-current liabilities are calculated under

the Funded and Non-Funded schemes.

All the presentations had an interestingquestion and answer session. Toconclude, it was a well structuredseminar by the ICAI and all the

participants had something to learn.

Dear Readers,

You can send letters / comments on articles, reports, or any other aspect of the

magazine to [email protected].

Binita Rautela

LETTERS FROM READERS

From J. R. Jo shi, a fell

o w Member

Da te : 31 -12 -2011

Dear Li yaqua t,

1. Oh, wha t an impo sing

in troduc tor y addre s s you h

a ve deli vered during the in

aug ural func tion o f the 14

th Global con ference

o f Ac tuarie s, on 20 th Febr

uar y. M y ha t s o f f to you, L

i yaqua t!

2. You ha ve e xhibi ted rar

e courag e in fearle s sl y e xp

o sing the pre sen t se t o f p

roblem s impending the IAI’

s march to ward i t s

mi s sion, vi sion and valu

e s.

3. Ho w to g e t the s truc tur

e modi ed to remed y the

a t ten tion ? The pi t y o f i t i s

tha t toda y our coun tr y i s d

i thering e ver y where

– all acro s s economic, n

ancial, educa tional, social

and e ven spor t s and cul t

ural eld s, India i s facing

do wn fall. There

are too man y PM’ s be sid

e s the nominal one. Med

iocri t y pre vail s; vi sion i s a

b sen t. I do no t ha ve in s

ig h t end o f the

tunnel. B y g od’ s g race, In

sha’Allah I mean, i t ma y c

ome and I ma y s till be on

ear th to wi tne s s the re vi v

al!

4. Ag ain, m y cong ra tula tion s for the a s sig nme

n t o f in troduc tion done in

e xcellen t fa shion.

5. Did you no tice tha t the

mag azine ha s ended the

ma t ter ab s trac t your speech to follo w th

e follo wing :

“ The hig he s t courag e i

s to dare to be your sel f in

the face o f ad ver si t y. Choo

sing rig h t o ver wrong , e thic

s o ver con venience,

and tru th o ver populari t y…

the se are the choice s tha t

mea sure your li fe. Tra vel t

he pa th o f in teg ri t y wi thou

t looking back,

for there i s ne ver a wrong

time to do the rig h t thing .

”

6. Wha t an appropria te w

a y to end your addre s s

J. R. Jo shi, Pune


11/32


A RAMBLE THROUGH THE AFRICAN

PENSIONS JUNGLEBy Tapiwa Maswera

he State Scheme

The state is invariably the

biggest employer in all Africancountries. In some countries, the

state employs more people thanthe entire private sector, so thedecision whether the state schemeis funded is very signicant for thedevelopment of the Pensions Industry.Whether funded or not, the statescheme is the mighty elephant bull,deceptively gentle, but capable ofmassive destruction of property and

human life. Ours is a condenceindustry, it thrives on credible

promises. The State scheme sets thetone for the Pensions industry as a

whole. The ordinary state employeecannot conceive a situation in whichthe State Scheme can fail to paypensions. But this sense of comfort ismisplaced.

T

[email protected]

About the Author

Tapiwa Maswera is a Fellow of the

Institute of Actuaries (UK), Societyof Actuaries (USA) and the ActuarialSociety of South Africa. He is thefounder of Acumen Actuaries and

Consultants and is currently workingon two African projects – theHarmonization of the Pension FundsIndustry in the SADC region and theconversion of pensions from theZimbabwe Dollar to the US dollar inZimbabwe.

Is this a risk which I see before me,

The handle toward my hand? Come, let me clutch thee.

I have thee not, and yet I see thee still.

Art thou not, fatal vision, sensible

To feeling as to sight? or art thou but A risk of the mind, a false creation,

In Africa, State Scheme differs from

countries like Zimbabwe and Malawi whichrun unfunded dened benet schemes,to Botswana and Lesotho which haveclosed their old unfunded dened benetschemes and replaced them with fundeddened contribution schemes. In betweenthese are countries like South Africa and

Namibia which run the old funded denedbenet schemes.

Is there a clear appreciation amongAfrican state planners of the risks that gowith the way they have chosen to structurethe state scheme? For example in most ofthe smaller countries (Namibia, Swaziland,Botswana), the state scheme constitutesover 90% of the pensions industry. Whenany risks to the pensions industry aredened, the State scheme takes the lion’sshare.

A funded state scheme in a country where

the government employs the bulk of allemployed people is a huge monster.It can grow very rapidly and overtakethe country’s GDP. The chief ExecutiveOfcer of the government fund controlsmore assets than the President of the

Country. A decit in a funded denedbenet scheme can easily become adestabilising inuence on the country’seconomy.

But there are even bigger ramications

politically. Funding the State schemecan create an entity with moremoney, clout and credibility than the

government. The political role of sucha powerful state nancial institution ona monolithic African political landscapecan be intriguing. Without adequategovernance, a funded African State

Scheme can easily degenerate into the

ruling party’s ATM.

In a small country, capital marketsmay not have the capacity to meet the

investment needs of the state scheme.So very often the state scheme has to

invest its assets outside the country.

Thus far from being a stabilizing

inuence on the economy, the statescheme can easily become the biggest

exporter of capital. Politicians have notbeen slow to notice this. Many countrieshave imposed local investmentrequirements. The domestic economy isusually unfortunately smaller than these

domestic investment requirements. Sothe returns on these assets are usually

not what they should be.

If a funded dened contributionState Scheme is zoo equivalent of anelephant, deceptively gentle, dangerous

Risk is as elusive as the dagger of Macbeth’s soliloquy. Your instincts tell you thatrisk is real, something you can instinctively perceive, reach for and grab by thehandle. It presents itself in such simple ways and forms, your instincts tell youthat you can tame it. It is hard not to trust your instincts. And yet trusting your

instincts is as fatal as a fascination with taming any of Africa’s big ve.

The story of Pension Funds in Africa is a tale about taming risk

F E A T U R E S


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F E A T U R E S

but caged, then a funded dened benetscheme is a wild elephant in a gamereserve, dangerous but contained. An

unfunded state scheme is like a wildlyroaming massive elephant bull, withthe potential to feed the whole villagebut more likely to destroy the village if

expert help is not sought. Understandingthat Pension Funds pay benets andare repositories of large amounts of

money without understanding theirrole in the economy is more dangerous

than understanding that an elephantbull can be a source of meat withoutunderstanding that the African weaponsof choice, the spear and the bow andarrow are unlikely to pave access to it.

(b) National Social Security Schemes

in Africa

The National Social Security Scheme

is normally the other pillar in AfricaPensions Provision. Zimbabwe andAngola have one. Lesotho and Namibia

are exploring how to implement one.The Philosophy behind a National SocialSecurity Scheme is simple. Create apension scheme for all those employedpeople who are not part of the privateoccupational pension scheme. Theeconomies of scale associated with thecreation of such a scheme would allowespecially the lowly paid to access someform of retirement provision.

In practice this is not what oftenhappens in most African countries

which have a Social Security Scheme.The establishment of National Social

Security Schemes have cannibalized the

pensions industry and in some casesdestroyed existing private occupational

Pension Schemes. The National

Social Security Scheme is sometimes

positioned to compete directly withprivate provision, even while it relieson compulsory contributions. When youguarantee anything, you lose efciency.A social security scheme may reach more

people but is not a viable alternative toa vibrant and active private sector.

Most African countries with a NationalSocial Security Scheme have set it upin such a way that there is no optionto contract out of the Social Security

Scheme. Creating a Social Security

Scheme without allowing Funds tocontract out is like a zoo that locks up aherd of gazelles and a lion in the same

cage. The gazelles may gallop fasterthan the lion in the wild, but in the cagethey will be gulped sooner than it takesthe lion to digest proceeds.

The National Social Security Scheme is

sometimes exempted from regulationand the pension laws of the country.

This creates a wild monster that is notaccountable to anyone. As much as

gazelles can outrun

elephants, in thewild, the lion canstill use stealth to

decimate them.

The question isno longer whetherthe gazelle can

outrun the lion; thequestion is whether

the ecosystem cansustain both lion

and gazelle over

the long term. If

not, then in the

long run, the gazelles will all be eatenby the lion after which the lion itselfstarves to death. The African economic

landscape has very few ecosystemsthat can sustain both the pension formof lion and the pension form of gazelle.Both die in the end.

Politicians have a tendency to over-estimate their ability to protect the

poor. In practice, the value destroyedin creating politicised vehicles fordelivering pensions to the poor oftendo not justify the benets. Suchvehicles can be short term vote buying

gimmicks with dangerous long termconsequences.

In theory the model is simple. Putaside money, earn interest on it and

pay pensions when members retire. Inpractice most African ination rates,investment markets and incompetence

make it impossible to earn a positivereal rate of return. Assets are then

generationally shifted in a de-compounding process that nominallycontinually shifts assets to future

generations at the expense of retiringmembers. Thus the Fund grows huge,while members retire in poverty.

Some countries have managed to make

pension provision possible for the poorby creating economies of scale by other

means. In South Africa, Bargaining

Councils, Unions, even industrialsectors have been identied andbeen successfully used as vehicles for

pension provision to the lower incomegroups

(c) The Dened Benet Fund

Private Pension Provision in Africa

was originally the preserve of bigmulti-nationals. The typical Fundwas dened benet with only higherincome employees eligible. The higherpaid earned enough to make pensionprovision economically viable. Expenseswere so high that provision for low


13/32


income groups was not viable.

The biggest entry barrier to the pensionsindustry was systems. You neededmainframes which cost millions tohandle data. And of course a pensionindustry whose benets were simplydened in terms of nal salary reducedthe information you needed to hold. Enter

Moore’s law! The costs of handling data

has hurtled down so fast, a competentman with a laptop can do more in oneday, what a whole army of clerks took awhole year to do.

Suddenly well capitalized insurancecompanies are no longer the onlygood guys in town. It suddenly makeseconomic sense to have a dened

contribution scheme and maintain the

entire contribution record of the member.

Risks can now be dened, quantiedand managed much more easily. And

suddenly the dened benet fund is asendangered as the rhino.

And so the great migration from denedbenet to dened contribution schemesbegan, and with it the creation ofsmaller more efcient specialist pensionadministrators who are not tied to anyinsurance company. The emergence of

specialist assetmanagers also

began in earnest.

The morphingof insurance

companies intospecialist risk andasset managers

continues and withit the death of the

specialist actuarialconsultancies.

4. The Unclaimed

Benet Fund

The Unclaimed benet Fund has itsroots in migratory labour practices.Large trade Union controlled Funds

always had large components ofmigratory labour that went back to theirvillages after their contracts expired.In some cases these members have

come to constitute quite a sizeablepopulation of members who havenot claimed their benets. Like theleopard you do not really know wherethe members are.

This has seen the creation of Funds

whose membership consists entirelyof members who have left the Fund

and have not yet claimed their benets.These funds use all sorts of data bases

(Home Affairs, Credit records) to tracetheir members and pay them theirbenets.

5. The Beneciary Funds

Once upon a time in the African jungle,lions attacked a killed a buffalo cowbut the calf though injured somehowsurvived. The buffalo herd got together,

used their horns to lift the poor injuredcalf onto its feet, and supported thelimping calf between themselves as theydisappeared into the distance. Humansshould be able to do better!

Further evolution of the retirement

Fund landscape has seen the creationof yet another kind of Fund. Southern

Africa especially has seen mortality riseover the last decade or so due to HIVAIDS. This has led to an increase in thenumber of orphaned beneciaries whoare usually paid a lump sum benet.Paying the benets of orphans requirescare and can be time consuming.

A new breed of Funds has thereforeemerged that consist exclusively of thebeneciaries of deceased members.These Funds seek to ensure that lumpsum benets are not squanderedimmature beneciaries.

VISION

IAI to be a globally well recognized

professional organization

developing enduring thought

leadership in managing

uncertainty of future nancial

outcomes.

MISSION

1. To educate/train risk professionals

2. To enhance and maintain high professionalstandards

3. To shape Public Policy and Awareness

4. To engage with other professional/regulatory/government bodies

5. To promote/build IAI as a respected brand ofrisk management globally

6. To promote research to advance actuarialscience/application

VALUES

1. Integrity

2. Respect for other’s views

3. Accountability

4. Continuing Learning/ResearchOriented

5. Transparency

6. Be Responsive/Sensitive

DRAFT VISION, MISSION AND VALUES STATEMENTS of IAI

F E A T U R E S


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hroughout the world’s emergingmarkets, insurers increasingly are

inclined to include microinsurance in their

long-term strategies. Microinsurancehas challenges – ranging from adverse

selection to lack of protability– thatare enough to discourage inclusion of

this business in short-term planning.However, increasing global interest inhigh-growth markets necessitates globalinsurers to understand this business

model. Therefore, this report providesan overview of this type of business,describes the typical participants anddiscusses its potential.

There is no standard, accepted denitionof microinsurance; as such, this report

will generalize it as insurance that isaccessed by the lower economic echelonsof a population. Microinsurance servesto improve coverage of basic humannecessities in terms of business lines

such as health, life, funeral, property andagriculture. Such micro policies transferrisk from low-income individuals – who donot have access to traditional insurance

– to a group. Typical characteristics ofmicroinsurance are:

• Low-cost transactions;• Simple risk coverage;• Low net-worth clients; and• Community involvement.The characteristics of low-costtransactions, simple risk coverage, andlow net-worth clients are similar to thoseonce found in home-service or industrial-life poli cies around the turn of the 20thcentury in the United Kingdom andUnited States. These policies were more

prevalent after the industrial revolutionsand evolved into more traditional linesthat contributed to a virtuous cycle of

protection, savings and increased wealth.Present-day emerging market economiesthat are cultivating micro-insurancewould like to see a similar evolution.

Products and programs are designed fora particular segment of the demographicpyramid (see Exhibit 1).The populationwith an approximate income level fallingin the lowest income range receiveshumanitarian assistance and tends to

be out of reach for commercially viable

microinsurance programs. Those in thehighest income range typically have

T

THE POTENTIAL OF MICROINSURANCE

access to traditional insurance. To these

populations, insurance’s purposesinclude access to health services and

sustaining families or villages in event

of a natural disaster. Swiss Re placesthe microinsurance market segment, in

terms of gross domestic product (GDP)per capita, at the approximate range of$1.25 to $4 per day. In a 2010 Lloyd’sstudy, people in this segment identiedthe following risks as their mainconcerns:

1. Illness

2. Death3. Natural disaster

4. Livestock disease

5. Accident

6. Property LossWhile these priorities imply a strongneed among individuals in the middle

income range for health insurance, life

insurance and agricultural insurance, it

does not automatically create demand

for it. Without an understanding of anda faith in insurance, this populationtends not to look to insurance as the

risk-management tool of choice, butinstead chooses alternate methods of

self-protection. Such methods beingapplied currently include: informal risk-sharing agreements; conservatism;savings; borrowing – likely at excessiverates; liquidation of assets – primarilyagricultural – which provides animmediate source of income but

diminishes long-term prospects fora family; or forfeiture of education inexchange for labor.

The Viability of Microinsurance

Certainly, populations stand to benetfrom the existence of microinsurance.Its effects improve the average standardof living in a given country, establish a

culture of savings and self-sufciency,and increase overall economic activity.

These benets are supported bygovernments, charitable foundations,

development banks and other groupsthat seek to alleviate poverty. But canmicroinsurance exist as a businessmodel for a prot-seeking enterprise?

The low premiums in microinsurancepolicies cannot cover the expensesof structures typical to traditionalinsurance models. Offering protection

to customers in exchange for premiumpayment, the insurer must incur thecosts of underwriting, claims processing,

analysis, regulation and other overhead.

The modern regulatory landscaperequires insurers to provide a substantialamount of paid-up capital; gather andreport signicant premiums, policyholderand claims information; and dedicatestaff members to regulate requestsand on-site visits. Highly skilled andexperienced professionals are requiredto perform these tasks. For the premiumlevels and prot margins available in

the area of microinsurance, such aninfrastructure would not be possible,except perhaps at a huge scale. Exhibit3 provides a generic illustration of howtypical expenses incurred by insurerscan be mitigated in this unique class ofbusiness.

Although this illustration does not reectany reference to donor capital, it isimportant to note that often, donationsand government subsidies are paid toinsurance companies, non-governmentalorganizations (NGOs), governments andservice providers to help alleviate thesecosts. However, A.M. Best contends thatlong-term sustainability of this businessmodel requires the industry to learn tosurvive without such direct assistance.Sharing Costs With the Community

As mentioned in the previous section,insurers incur signicant costs associatedwith the distribution of insurance, thecollection of policyholder information

that identies their needs and assessestheir risks, and the assessment and

payment of claims. Through certain typesof organizations or partnerships withcommunity organizations, micronanceinstitutions (MFIs) and cooperatives, risk-bearing entities can reduce those costs

and afford to reduce premium chargesto policyholders. This approach oftenis referred to as the “Partner” (insurer)– “Agent” (community organization)

model. Through this method, insurersgain access to large aggregations of

clients through an existing channel.

Insurance-centric, grass-roots

AM’s Best’s Special Report on Micro Insurance Market Review; March 5 , 2012.

This article is reprinted with duepermission from A.M. Best Company. F

E A T U R E S


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organizations can concentrate on

micro-type policies. According to anInternational Association of Insurance

Supervisors (IAIS) – MicroinsuranceNetwork 2010 issues paper, mutuals,cooperatives and community-basedorganizations (MCCOs) play a specialrole in the distribution of microinsurance.

MCCOs, in this denition, include

mutuals, cooperatives, friendly societies,burial societies, fraternal societies, risk-pooling organizations, community-basedorganizations and self-insuring schemes.This group overlaps with the onespreviously mentioned, but is establishedprimarily to provide insurance tomembers.

Aside from insurance-specic groups,other community-based organizationsalso play a special role in the distribution

of microinsurance. These organizations– which commonly focus on fulllingreligious, social, economic or health

services – are run by community leaders

and are able to identify members’ needs,

which often include the assuaging ofthose fears mentioned earlier in this

report: protection against illness, deathand natural disaster. In many countries,

these community organizations have

become essential to the distribution of

insurance and claims to members.

Reducing Costs Through Innovation,

Partnerships and Simplicity

Insurers that are successful in this

space understand that microinsuranceis more complex then merely scalingdown traditional insurance, and thatcreativity and innovation are the keys

to its success. A variety of methods are

employed on a case-by-case basis toreduce costs.

Many insurers have partnered with avariety of service providers, primarilythose dealing in high-volume, easilyaccessible products – such as cellphone companies, grocery chains, banks(micro-nance institutions) and lotteries– to distribute insurance products. Forexample, a simple life policy can bebundled with the sale of air time ona mobile phone.The product and itscontract are simple to understand andeasy to access and pay, and often leadto the gradual increase of coverage. On

the benets side, insurers often partnerwith service providers such as physiciangroups, pharmaceutical companies,

funeral homes and cofn manufacturers,as well as distributors of agriculturalproducts.

Reminiscent of the early days of U.S.industrial life insurance, door-to-doorselling of insurance policies does occur.For example, a community memberwould sell a product such as funeralinsurance door-to-door, receiving apercentage of premiums sold. Withthis method, the product and brandgain traction through the developmentof personal relationships. This style ofdistribution is similar to the community

partnerships, except that it inltrates acommunity that is linked in its geographyas opposed to its beliefs or occupation.

To reduce claims-adjusting and data-collection costs, and to contribute to scale,

insurance can be written in more general

terms. For example, health insurancein the microinsurance market omits

screening for pre-existing conditions andits related expenses. Coverage is simpleand payout is limited. In the area ofcatastrophe protection, index insuranceis utilized. For example, if a particularevent threshold – perhaps a level ofrainfall or magnitude of earthquake– ismet, an insurance company will pay outon all policies, regardless of damage.

Beyond utilization by farmers foragricultural risks, governments also buy

such products to cover for earthquakerisks that are beyond the capacity oftheir state disaster relief funds, such as

Mexico’s disaster fund, FONDEN, and theCaribbean Catastrophe Risk InsuranceFacility (CCRIF).

The Role of Regulators

As previously mentioned, it is in theinterest of governments and charitable

organizations to encourage the growthof this class of insurance. Typically,insurance regulators are responsiblefor protecting policyholders and forguaranteeing the population’s access toinsurance in their respective domiciles.As microinsurance emerges as the

potential method of granting accessto the underserved members of their

population, regulators can presentinsurers an incentive to offer productsto the lower-income populations, such

as reducing licensing requirements ormaking regulations proportional to therisks being taken. In the case of India, the

Insurance Regulatory and Development

Authority (IRDA) requires companiesseeking to write business in India todedicate a portion of their capacity toincreasing access to insurance for the

country’s underinsured populations.

The IAIS has provided guidance toregulators around the world on howto regulate microinsurance and has

been innovative in its approach tomicroinsurance, as it has actively engaged

in modifying core regulatory principalsfor the purpose of increasing insuranceaccessibility. Additionally, the Group ofTwenty (G-20) nance ministers who haveincluded increasing access to insurance

in their Mexico agenda later this year.

Proportionality is a core concept thatapplies to capital requirements, exibilityin pricing, policy structure, unorthodoxdistribution and transparency regarding

clients. Specically, regulators seekingto increase the population’s access toinsurance can do so by easing insurers’

regulatory burdens and reducing their

cost-intensive obligations such asinitial capital and data, and reportingrequirements. Regulators also canenact regulation on microinsurance

which can simplify policies and reduceadministrative expenses. Althoughregulation should protect policyholders

from fraudulent insurance schemes,it should not make products cost-prohibitive to insureds or create a burdenfor insurers.

Microinsurance as a Long-Term Growth

Strategy

To create a successful microinsurance

program, there must be cooperation,innovation and a great deal of exibility bydonor organizations, risk-bearing entities,governments and community groups.

In this market, the majority of risk-bearing entities are commercial insurers

that often work with community groupsfor distribution purposes, and enter thissector with various motives, ranging fromthe philanthropic to the opportunistic.Specically, an insurer’s participation inmicroinsurance programs may afford itthe following advantages:

• Gaining access to new and potentiallyhigh-growth markets.

• Enhancing the brand by creatinga favorable image to the generalpopulation.

• Enabling compliance with governmentrequirements.

F E A T U R E S


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• Being a means to learn the nuances ofa given market for the sake of future

product development.• Enabling a company to diversify,

as well as create new cross-sellingopportunities.

The Microinsurance Network’s 2010survey stated that private-sectorparticipants expect the business to

more than double in the next three yearsas insurance awareness grows andgovernments increase their incentives for

companies to participate in this segment.Companies with longer-term perspectivesand a desire to grow in emerging marketscan use a microinsurance strategy to

build insurance awareness along withbuilding their brands.

Potential Market Size

Largely consistent with previous studies,

Accenture recently published a study thatidentied the market as between $30billion and $50 billion in annual premiumrevenue. If we assume the targetcustomers are those whose incomesare approximately between $500 and$1,500 per year, then we can asssemblea list of emerging market countries

that have current or future potentialfor microinsurance policies. A partiallisting of these countries (see Exhibit 4)shows the current or potential domiciles

for microinsurance in terms of GDP percapita.The shaded areas representthose quintiles of the population whoseaverage income is within, or close to, theincome target range for microinsurance.

Comparisons of regional income quintilesshow that the demographics of Africaand Southeast Asia are, as a whole, morerelevant to the microinsurance model.

Exhibit 5 shows the per capita incomefor each quintile of the populations

in Africa, Southeast Asia and Latin

America. For example, it shows that thetop quintile (top 20%) of people in LatinAmerica have, on average, an estimated

per capita income of $18,366 and thebottom quintile (bottom 20%) of peoplein Southeast Asia have, on average, an

estimated per capita income of $852.The exhibit shows the demographicsin terms of potential development ofmicroinsurance. While regions such

as Southeast Asia and Africa t thetraditional microinsurance mold, otherssuch as Latin America do not t the typicalprole, yet microinsurance has taken astrong foothold in the domestic market.

Specically, India and the Philippines– which have large target populations–have the most innovative and most

supportive environments and the highestgrowth for microinsurance in the world.MFIs are signicant distributors in thesecountries. According to the Accenture

study, India and Philippines, along withBangladesh and China, are the world’s

fastest growing micro-insurance markets(see Exhibit 6).

In contrast to India and the Philippines,Brazil’s population is, on average, muchwealthier. In fact, only a portion of thelowest income quintile falls into the targetpopulation for microinsurance (see Exhibit7). Nevertheless, a large segment of thepopulation is underserved by traditionalinsurance. As a result, in December 2011,the Brazilian insurance regulator, SUSEP,

introduced new regulation to encouragethe development of microinsurancein Brazil. Exemplifying methodsof proportional regulation, SUSEPannounced that base capital for insurersexclusively dedicated to microinsurancewould be 20% less than the required basecapital for traditional insurers.

In contrast to its Asian counterparts,Brazil has different business models

and does not need to take advantage of

donor capital to survive – as some otherprograms might – implying that areas ofgreater need tend to require more mixedmodels incorporating subsidies andsupport. Instead, recently establishedcompanies – aided by the more forgivingregulatory environment – are able to

develop an interesting business modelthat is considered the next level up frommicroinsurance. Instead of distribution

through MFIs, insurers are utilizing retail

outlets, utility and telecommunications

companies to identify customers,distribute their products and collectpremium payments, as unit prices arehigh enough to cover costs.

Expanding Companies’ Reach Into

Emerging Markets

Insurance protection against death,accident, injury and property damagein small amounts is not a new conceptto the insurance industry. Companiessuch as MetLife Inc. and Prudential

wrote industrial policies more than100 years ago for the working poor,and some companies in developedcountries still write those policies. Forcompanies, microinsurance requires

scale, innovation and exibility to beprotable. And, the business case for itis clear, especially to a company wishingto pursue long-term growth in a countryor region that is actively increasing its

population’s access to insurance.

A wide array of companies has venturedinto microinsurance, with mixed results.Some have lost signicant investments in

projects that ultimately failed. However, anumber of companies have managed tobe protable in this space and are able touse the business model to diversify risks,

increase brand awareness and enter amarket at its most nascent stages.

A.M. Best expects the industry to evolveand will closely watch developments inmicroinsurance business models.This

evolution, made possible by advancesin innovation in technology, and in

corporate and partnership structures,will allow insurance to penetrate deeperinto the lower echelons of the incomepyramids across the globe.

Leveraging Memberships Structure of

Cooperatives

The Latin American Reinsurance GroupThe Members of LARG Are: (LARG) wasformed in 2004 to facilitate the joint

negotiation and placement of reinsurancetreaties. All LARG members, whorepresent 13 countries, are members ofthe International Guatemala Cooperativeand Mutual Insurance Federation (ICMIF).The majority of LARG members aresmall institutions that aim to develop aninsurance culture among the low-incomepopulations. That said, not all membersoffer microinsurance yet.

(LARG) LARG facilitates larger-scaleaccess to reinsurance and raises

awareness among populations andgovernments with the goal of achieving

long-term feasibility of insurancefor low-income communities. Thisgroup also receives assistance fromvarious institutions including ICMIF;Cooperation Society for InternationalDevelopment (SOCODEVI), from Canada;Willis Re, who is the intermediary inthe nonlife reinsurance programs; andthe reinsurers, American Agricultural

Insurance Company, RGA and Shelter.

Latin America’s growth of premiums and

risks insured is rapid, albeit from a lowbase. LARG strives to achieve scale andefciencies so that this program may besustainable for the long term.

F E A T U R E S


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LOOKING AROUND by Vinod Kumar

he Mars exploration programundertaken by NASA scientists

target to understand whether Marsever developed or maintained anenvironment in which life could

thrive. This could also lead to deeperunderstanding of Mars surface to

know whether life ever existed in Marsand what made it extinct. The rst andforemost testing is to understand the

existence of water content and energysources in Mars. This would lead tofurther investigations of life traces or

exploring future possibilities of lifeexistence in Mars.

There are different thoughts about

this mission- A program requires hugebudget provisions which in turn canbe utilised for eradicating poverty ofmillions in Earth and/ or building up awonderful living city or what else not.What all achievements humankindwould have achieved after knowingabout the planet Mars? Questions aremany and answers not too many. It maybe possible that we all in this planetare curious about our past, anxious

about our present and concernedabout our future of existence in theuniverse.

Wondering why the Mars program inthe “Actuary India”? From my side,wondering how many of our subscriberswill read this article at all. Many a times,we could see the subscribed magazinesdumped in a corner of the reading tableof our members without opening thecover!!!

T [email protected]

About the Author

Vinod Kumar is Associate member of

Institute of Actuaries of India and iscurrently heading Research team atIAI.

Agree that actuarial science is not like

a “Titanic” lm story to make everyonefeel interested. We would have foundsufcient time to watch such interestingmovies and programs without having

any constraints of time!!! Are we happywith the barest minimum actuarial workof the day? We need to survey thisbehavioral pattern from ourselves. Itmight be that we all started believingthat the profession is meant for our dayto day livelihood and nothing else.

Indian insurance market is moving over

a rough road now. The role of actuariesbecome much more signicant thanever before in the Insurance market

to bring it back for a smooth ride. The

situation is also so opportunistic foran actuary to demonstrate their skills

as a risk management professionalto the market as a whole. Such ademonstration only can open up newavenues in the market beyond the four

walls of insurance, which is the need ofthe hour and requirement for long termexistence.

Market recognition of the Indian

actuarial profession can only bepossible by expressing ourselves aboutthe confronting issues and possiblesolutions thereof of the market. Let us

all please look around and understandwhat is in the public domain ascontributed individually and collectively.

The broken part of the thread is that,there aren’t enough research and

publications done by us to express ourviews and solutions to important issues

and challenges of the market.

Coming back to the Mars explorationand its motives of spending thousandsof human brains and millions of

dollars, are we not comfortable in theEarth leading to further exploration ofanother planet?

The bottom line is, dry lands are signs of

gradual extinction of life. A fertile landwith sufcient and regular wateringonly can prevent life extinction from theuniverse. This basic principle is equallyapplicable for actuarial profession aswell. It needs regular watering in theform of thought process, research andinvestigations from our members.

Like a Mars exploration checking theexistence of water traces in Mars, atime should not come to check the

actuarial traces in the Indian soil. Thiscan be only possible by self-realisingour contributions to the professionand future in the waiting. Let us makeour contributions to the profession bychanging our perception from “Fools doresearches and wise men use” to “Wisemen do researches and wise men use”.This change of perception and attitudecan only make the actuarial land fertile

and profession exist.

GO OUT AND CHANGE THE WORLD....THE MORE YOU STUDY , THE MORE YOU SHOULD HAVE -A GOAL YOU SHOULD BE PURSUING

A DREAM YOU SHOULD BE LAUNCHING

A PLAN YOU SHOULD BE EXECUTING

A PROJECT YOU SHOULD BE STARTING

A POSSIBILITY YOU SHOULD BE EXPLORING

AN OPPORTUNITY YOU SHOULD BE GRABBING

AN IDEA YOU SHOULD BE WORKINGA PROBLEM YOU SHOULD BE TACKLING

A DECISION YOU SHOULD BE MAKING

THE GREATEST FORCE IN THE WORLD IS A POSITIVE IDEA. - ANONYMOUS

F E A T U R E S


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THE INSURANCE SECTOR OF SRI LANKAby Frank Munro

conomy of Sri Lanka

Since becoming independentfrom Britain in February 1948, theeconomy of Sri Lanka has been affected

by natural disasters such as the

Tsunami in Dec 2004 and a number ofinsurrections, mainly the 26-year civilwar. In 2001, Sri Lanka actually facedbankruptcy, with debt reaching 101% ofGDP. The impending currency crisis wasaverted after the government reached

a hasty ceasere agreement with theopposing LTTE and brokered substantialforeign loans.

The cost of war signicantly weighteddown Sri Lanka’s economy .A sharp risein world petroleum prices combined with

economic fallout from the civil war ledto ination that peaked at 20% in 2008.However, Sri Lanka now reaps peacedividends after ending the three-decadelong civil war.

The economy grew by a strong 8% in2010 which is the rst full nancial yearafter conclusion of the war. There isstrong evidence of continuation of the

growth momentum in 2011 and beyondas the rst half of 2011 also grew by 8%.The Department of Census and Statistics

announced that the best ever economicgrowth in Sri Lanka since 1948 wasrecorded in 2011 with a growth of 8.3%.

The GDP of Sri Lanka (as estimated in2010) is $49.55 billion and agriculturalproducts, services and industryaccounting for 11%, 59% and 29% ofGDP respectively.

Industry Overview

The Insurance Industry in Sri Lanka

is regulated and supervised in terms

of the provisions of the Regulation ofInsurance Industry Act, No.43 of 2000.

The Insurance Board of Sri Lanka

(IBSL) is established under this Act. 19insurance companies were registeredunder the Insurance Board at the end of

year 2010. Out of these 19 companies,12 are composite companies which aretransacting both long term insurance

business and general insurance

business. Out of the rest, 2 companiesare registered to transact only long

term insurance and 5 are registered

to transact only general insurance

business. Out of all, 7 companies arelisted on the Colombo Stock Exchange.

E The companies which provide brokingfacilities to the industry were registeredunder Act No. 7 of 2007 and there were42 such companies at the beginningof the year 2010. Out of that, 33 werecomposite companies, with 8 engaged

only in general insurance. The principalAct permits only individuals to functionas insurance agents and they have thus

played a key role in marketing insuranceproducts in Sri Lanka, mainly in the lifeinsurance sector. Approximately 65,000individuals are functioning as insurance

agents in the country.

History

The IBSL was established under theabove insurance act on 1st of March

2001. The Sri Lankan Insurance Institute(SLII), a non-prot making organizationwhose main objective is to develop theskills and knowledge of persons who arein the insurance industry, was establishedin 1982. The Insurance Association of SriLanka (IASL) was established in 1989,and every insurance company registeredunder the Act is eligible for membership.However, the real start of the industrycould be found much further in the past.Ceylinco Insurance started in 1939 for

example, and Sri Lankan insurance, whichis the state owned corporation, started in1962, with CTC Eagle starting in 1987.

2010 Industry Performance

During year 2010 the aggregate grosswritten premium (GWP) reported fromlong term & general insurance business

totaled up to ` 68,493 million, recordinga signicant growth of 19.63% over 2009.The total premium as a percentage ofGDP was 1.22%. The GWP of long term

insurance business amounted to` 31,151million, showing an increase of 31.07%,while the GWP of general insurance

business amounted to ` 37,342 million,reporting a growth of 11.52% comparedwith 2009. The total assets of the

industry amounted to ` 222,243 million

as at 31st December 2010 indicatingsignicant growth of 22.76% over 2009.Assets pertaining to long term business

were valued at ` 139,592 million at theend of 2010, recording growth of 18%.Assets of general Insurance business

and shareholder assets amounted to

` 82,651 million, reecting a growth of31.74% over 2009.

[email protected]

About the Author

Frank Munro FIA is Chief Actuary

of AVIVA NDB Insurance, and is theonly internationally qualied Fellowworking full-time in Sri Lanka.

Products – Life

The bulk of the products sold in the industryare UK-inuenced conventional with-protsplans supported by protection riders. Since2006 unit-linked plans have started to besold, and have seen much success on the

back of record stock market gains in 2009and 2010. The life industry experiences

high rates of lapse compared with otherinternational markets.

Products – Non-Life

The non-life market remains dominatedby the motor class of business, witha fairly large corporate medical class.Generating protability in thesesegments is a challenge for the majority

of market participants.

Capital Requirements

The minimum capital requirement

that the IBSL requires for a companyto register is ` 500 million per classof insurance, and a suitable rating of

an insurer’s nancial strength is alsorequired.

Risk Based Capital (RBC)

The IBSL has taken a decision to

transform the rules-based supervisorysystem to a risk-based capital model.This proposal will present a challengeto the industry in terms of the capabilityrequired to develop the framework.However, it will also elevate the role ofthe actuary in the marketplace and willlead to greater opportunities for thosewithin the actuarial profession.

Splitting of composite companies

The IBSL are gearing to separate rmswith life and general insurance intotwo different companies, in a bid tomake them more transparent, amidstopposition from the industry. This is tokeep in line with the trends in the rest

of the world. Also the IBSL feels thereis a growing need to have a clear linebetween the assets in the company andthe liabilities backing these assets for

shareholders as well as the regulator.

U P D A T E

C O U N T R Y


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MAURITIUS - ACTUARIES IN PARADISE

by Vanisha Pursun

[email protected]

or those of you who haven’t heardof us, Mauritius is a small island in

the Indian Ocean surrounded by clear

blue oceans and white sandy beaches. A

large part of the population of 1.3 millionis of Indian origin and we thus havestrong cultural ties with India.

The last time I counted, there wereabout ten qualied actuaries living andworking on the island. Most of us aremembers of the UK institute but we alsohave a few Fellows of the Institute ofActuaries of India. In addition, I reckon

that there are about a hundred students

who currently enroll for actuarial

examinations governed by variousglobal actuarial bodies and two localuniversities have recently started offering

an undergraduate degree in actuarial

science. A local actuarial society is also

in the process of being set up.

Apart from beaches and lagoons,Mauritius is also well known for itsvibrant, well regulated and expandingnancial services sector. Following themandatory separation of long term andshort term insurance businesses as from

1 January 2011, there are 22 insurance

companies which are licensed by theFinancial Services Commission (FSC).Insurance companies have to complywith the Insurance Act and are requiredto submit annual actuarial valuation

reports to the regulator. All insurancecompanies are required to appoint anexternal actuary for regulatory work.Long term insurance products also have

F

About the Author

Vanisha Pursun is a Fellow of theInstitute and Faculty of Actuaries.

She has some 13 years’ experiencein Pensions and Employee Benets inMauritius.

to be signed off by the external statutoryactuary before they are approved by theFSC and can be marketed.

Insurance companies are the largest

employers of qualied actuaries andactuarial students on the island. Some

local members of the profession arealso employed by actuarial consultancyrms and local arms of global reinsurers.Actuarial consultancies provide servicesmainly in Pensions and Employee benetsand more specically compliance work inrelation to the IAS 19 accounting standard.

The pensions industry is well developedin Mauritius with most of the major

employers sponsoring their own privatepension fund. All private pension fundshave to be approved by the MauritiusRevenue Authority (MRA) for employersto benet from tax deductions on theircontributions and the government

has signied its intention of enactinga Private Occupational PensionsAct to govern private pension funds.Insurance companies also offer insuredarrangements to smaller employers anda couple of multi-employer pension funds

are also available. Although most pensionfunds are of a Dened Contributionnature, a few Dened Benet pensionfunds still exist and actuarial valuationof these funds are usually carried out by

local actuarial consultancies.

Even though insurance companieshave been present on the island formore than 50 years, the rst local

actuarial consultancy was only set up

fteen years ago. The local actuarialcommunity is therefore relatively young

and has developed very fast over thelast few years. However the size of thelocal market means that the demand for

actuarial skills is limited. Currently many

actuarial science graduates either workin non-actuarial sectors or choose to getsome practical experience in developedcountries.

As the market develops further,the demand for actuarial skills willundoubtedly soar. Moreover, major local

insurance companies have indicatedtheir intention to expand regionally andthe government is also encouraging

foreign companies to use Mauritius as aplatform to invest in the African region.In addition, some international actuarial

consultancies have expressed an interestin outsourcing part of their actuarialprocesses to Mauritius because of therelative lower employment cost locally.All these projects will undoubtedly resultin an increase in the number of ‘actuariesin paradise’.

Last but not least, given the privilegedrelationship Mauritius shares with Indiawe look forward to a closer collaborationwith the Institute of Actuaries of India onfuture projects.

Source:https://www.cia.gov/library/publications/the-world-factbook/geos/mp.html

Location: Southern Africa, island in the Indian

Ocean, east of Madagascar

Geographic coordinates: 20 17 S, 57 33 E

Map references: Africa

Area: total: 2,040 sq km

country comparison to the world: 181

land: 2,030 sq km water: 10 sq km

note: includes Agalega Islands, Cargados

Carajos Shoals (Saint Brandon), and Rodrigues

Area - comparative: almost 11 times the size of

Washington, DC

Land boundaries: 0 km

Coastline: 177 kmMaritime claims: measured from

claimed archipelagic straight baselines

territorial sea: 12 nm

exclusive economic zone: 200 nm

continental shelf: 200 nm or to the edge ofthe continental margin

Climate: tropical, modied by southeast trade

winds; warm, dry winter (May to November);

hot, wet, humid summer (November to May)

Terrain: small coastal plain rising to

discontinuous mountains encircling central

plateau

Elevation extremes: lowest point: Indian

Ocean 0 m, highest point: Mont Piton 828 m

Natural resources: arable land, sh

Land use: arable land: 49.02%,

permanent crops: 2.94%,

other: 48.04% (2005)

Irrigated land: 210 sq km (2008)Total renewable water resources: 2.2 cu km

(2001)

Freshwater withdrawal (domestic/industrial/agricultural): total: 0.61 cu km/yr

(25%/14%/60%)

per capita: 488 cu m/yr (2000)

Natural hazards: cyclones (November to April);

almost completely surrounded by reefs that

may pose maritime hazards

Environment - current issues: water pollution,

degradation of coral reefs

Geography - note: the main island, from which

the country derives its name, is of volcanic

origin and is almost entirely surrounded by

coral reefs; home of the dodo, a large ightless

bird related to pigeons, driven to extinction

by the end of the 17th century through acombination of hunting and the introduction of

predatory species

ABOUT MAURITIUS

U P D A T E

C O U N T R Y


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he Chairman of the Financial

Stability Board (FSB) reported tothe G20 Finance Ministers and Central

Bank Governors today on progress in the

nancial regulatory reform programme.In connection with this, the FSB ispublishing today:

• a letter by the FSB Chair to theG20, sent ahead of their meeting,

reporting on the progress beingmade in the following priority reformareas: (i) building resilient nancialinstitutions; (ii) ending “too big to fail”;(iii) strengthening the oversightand regulation of shadow banking

activities; (iv) completing OTCderivatives and other reforms to

create core continuous markets;and (v) implementing agreed G20reforms in a timely and consistent

manner;

• a report on progress in extending theframework for Global SystemicallyImportant Financial Institutions

T

FSB Press Release; April 20, 2012,

FINANCIAL STABILITY BOARD REPORTS TO G20 ON PROGRESS OF

FINANCIAL REGULATORY REFORMS

(G-SIFIs) to domestic systemicallyimportant banks;

• a report on progress in strengtheningthe oversight and regulation of the

shadow banking system;• a joint report from the International

Accounting Standards Board (IASB)and the Financial Accounting

Standards Board on their progress inconverging their standards, together

with a report on enhancements tothe governance of the IASB.

At today’s meeting the G20 Finance

Ministers and Central Bank Governors

reafrmed their commitment to

common global standards by pursuingthe nancial regulatory reform agendaaccording to their agreed timetable in

an internationally consistent and non-discriminatory manner.

Notes to editors

The reports are available on theFSB’s website, www.nancialstabilityboard.org/.

The FSB has been established to

coordinate at the international level the

work of national nancial authoritiesand international standard setting

bodies and to develop and promotethe implementation of effectiveregulatory, supervisory and othernancial sector policies in the interestof nancial stability. It brings togethernational authorities responsible fornancial stability in 24 countries and jurisdictions, international nancialinstitutions, sector-specic internationalgroupings of regulators and supervisors,and committees of central bank experts.

The FSB Secretariat is located in Basel,Switzerland, and hosted by the Bank forInternational Settlements.

For further information on the

FSB, visit the FSB website, www.nancialstabilityboard.org/.

he Private Sector Taskforce ( PSTF),in which the International Actuarial

Association (IAA) is a member, submittedan update to its report Regulatory Con-vergence in Financial Professions and

Industries (“2011 Report”) issued to theG-20 Deputies in September 2011.

The PSTF strongly encourages the G-20to implement all of the 15 recommenda-tions presented in its 2011 Report withemphasis on its rst two recommenda-tions:

• Continue to focus on regulatoryconvergence in the nancial sector,ensuring that G-20 nations work to-gether to identify and narrow gaps in

regulatory practice; and

• Discourage nations from implement-ing unilateral national regulatory

reforms that are inconsistent with

T

IAA Press release; April 19, 2012

The IAA Participates in the Private Sector Taskforce of RegulatedProfessions and Industries and Makes Recommendations to the G-20

Update to 2011 Report Addresses Implications for 2012 and Beyond

international standards and that

widen—rather than narrow—the con-vergence gap.

In support of these recommendations,the update provides a discussion of mat-

ters that have arisen since the 2011

Report was issued―including examplesof where regulatory convergence hasmoved forward, such as the applicationof Legal Entity Identiers (LEI) and theadoption of International Financial Re-porting Standards (IFRS) and Interna-tional Standards on Auditing (ISAs). Theupdate also notes examples where inter-national regulatory arrangements have

become more fragmented.

The update includes additional recom-mendations regarding public sectornancial management and reporting,transparency, and accountability. Over

the last year this has been brought into

greater focus as a consequence of thesovereign debt crisis, and growing globalnancial instability. Other important mat-ters are identied which the PSTF sug-

gests will require closer attention by theG-20 in 2013 and beyond.

The PSTF was established in 2011 at therequest of the Presidency of the G-20.In addition to the IAA, the PSTF includes

International Federation of Accountants

(which acts as coordinator), CFA Institute(CFA I); INSOL International; Institute ofInternational Finance (IIF); InternationalAccounting Standards Board (IASB); In-ternational Corporate Governance Net-

work (ICGN); International InsuranceSociety (IIS); and International ValuationStandards Council (IVSC).

T H E P R E S S

F R O M


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How did you come to know about ACET?

I came to know about ACET from my brother who is an employeeof LIC of India.

Tell us about your childhood, family and educational

background?

We are a nuclear family. I were born and brought up in a smallindustrial town known as Namrup, located in Upper part ofAssam. My father was a service person until 2007, when hegot retired. My mother is a house maker and elder brother an

employee of LIC of India. My earlier education till 12th was in

Namrup. After that I graduated as B.E in Electrical Engineeringfrom Assam Engineering College located in Guwahati and underGauhati University, with Honours in the year 2009.

How did your parents, family and friends contribute to your

success?

They are very supportive and encouraged me to persuade acareer of my interest. Though, from a middle class family withlimited monthly budget, I had always been provided with thebest that could be afforded for the success in my career.

Having already completed engineering, what has

motivated you to take up Actuarial professional course?

Having completed Engineering I joined ASSAM STATEELECTRICITY BOARD as Assistant Engineer in the year 2009.After few months of work experience I felt the importance ofFinance in an organization. But for me Finance is just like

looking at the other side of the smog. Beside this, gradually I

was inclined to the Insurance sector too. The fact that I don’thave much knowledge about these two subjects has made metake Actuarial Science as a professional course.

How many hours of study on average per day did you put in

to pass the ACET result where in 1,663 candidates appeared?

I have many ofcial tours so whenever I am at home I used tostudy. However 1-2 hour of regular study is sufcient for ACET.

How do you think you can add value to the Actuarial

Profession?

I will bring more awareness about this profession to the peopleof my region who have the requisite talent to pursue this courseso that, this profession can be extended to cover most of theindustries or service providers which currently suffers from lackof actuarial valuations.

Any comment on your experience with ACET process?

The ACET process is simple and easy. The guidance provided by

the Institute during registration and notications available onthe website are appreciated.

What is the level of awareness about actuarial science in

North east India since we would like more participation from

the local people?

I would say probably 2- 5% of the local people would be able toanswer, what is Actuarial Science?

In fact none of my friends, colleagues were aware of the course.However I try to make people aware of Actuarial sciencewhenever I get an opportunity.

Any message for the students wanting to take up the

ACET in future from Guwahati

There is a common notion that ACET as well Actuarial course

requires good Mathematical and analytical skills and the

pass percentage is poor. But I would say dedication and self

motivation are the two factors that would set success to your

Actuarial career.

I believe that, the natives of North east part of India have

enough skills to qualify as Actuaries and to be at par or

probably above compared to the other states in number of

pass candidate.

BIKRAM BORDOLOI

[email protected]

F A C E

T O F

A C E

W I T H

BIKRAM BORDOLOIACET CANDIDATE FROMNORTH EAST INDIA


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FRANK MUNRO, CHIEF ACTUARY ATAVIVA NDB INSURANCE [email protected]

F A C E

T O F

A C E

W I T H

actuary india may 2012

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