Insurance Fund Management

ASSIGNMENT ON

ACTUARIES
Submitted to: Prof. Ranjeet Kaur Patel By: Vidhi kanakia T.Y.B.F.M. Roll no: 26 M.K.Sanghvi College

The

dictionary meaning of the word Actuary is

Someone whose job is to advise insurance companies on how much to charge for Insurance after calculating risk. An expert in statistics and probability specially one who calculates insurance risks and premium.

An

ACTUARY

is a business professional who deals with impact

of risk and uncertainties. Actuaries provide expert assessment of financial security system with a focus on their complexity, mathematics and mechanism Actuaries mathematically evaluate the likelihood of events and quantify the contingent outcomes in order to minimize losses, emotional and physical, associated with uncertain desirable events. These risks can affect both sides of balance sheet, and require asset management and liability management and valuation skills. An Actuary has analytical skills, business knowledge and understanding of human behavior which are essential to manage and design programs that control risk.

In 2010 a story published by job website Carrier Cast ranked actuaries as the #1 job in United States

This study used 5 key criteria to rank jobs:

1. Environment 2. Income 3. Employment outlook 4. Physical demands 5. Stress

James Dodsons pioneering work on the level premium system led

to the formation of the society for equitable assurances on lives and survivorship (now commonly known as Equitable Life) in London in 1962. This was the first life insurance premium company to use premium rates which were calculated scientifically for long term life insurance policies, using Dodsons work. The company still exists though it has run into difficulty recently. After Dodsons death in 1757, Edward Rowe Mores took over the leadership of the group that eventually became the Society for Equitable Assurances in 1762. It was he who specified the chief official should be called an ACTUARY Previously the use of the term should be restricted to an official who recorded the decision or acts of ecclesiastical courts. Other companies which do not originally use such mathematical and scientific methods most often failed or were forced to adopt the methods pioneered by Equitable.

INSURANCE is a risk management technique primarily used

to hedge against the risk of contingent, uncertain loss that may be

suffered by those individuals or entities who have an insurable interest in scarce resources, by transferring the possibility of this loss from one interested person, persons or entity to another.

NEED FOR INSURANCE:

The basic requirement of communal interest gave rise to risk sharing since the dawn of civilization.

For e.g.:
People who lived their entire life in a camp had the risk of fire which would leave their band or family without shelter. Merchant embarking on trade journeys bore the risk of losing goods entrusted to them, their own possession or even their lives. Intermediaries developed to ware goods and trade goods and they often suffered from financial risk. The primary providers in any extended families or household always ran the risk of premature death, disability or infirmity, leaving their dependents to starve

ROLE OF ACTUARIES IN INSURANCE:

ACTUARIES are experts who performs actuarial analysis of insurance rates, rating procedures, rating plans, and schedules of insurance premiums. These are professionals who are experienced in reviewing and analyzing insurance operation, reserves and underwriting procedures and providing technical assistance regarding actuarial matters to policy examiners and other technical staffs. In other words they are the people who ascertain in advance the uncertain events that could take place in future and come to a financial conclusion. ACTUARIES are involved in pricing, product design, financial management and corporate planning. They use their professional expertise in solving complications financial problems by combinig their theoretical as well as practical knowledge. ACTUARIES also hold a legal responsibility for protecting the benefits promised by insurance companies. Their roles demand the highest standards of personal integrity and applications of professional skills. ACTUARIES balance their role in business management with responsibility for safeguarding the financial interest of the business.

RESPONSIBILITY OF AN ACTUARY

1.

ACTUARIES use skills in mathematics, economics, computer

science, finance, probabilities and statistics, and business to help the business assess the risk of certain events occurring and to formulate policies that minimize the cost of that risk. For those reason, ACTUARIES are essential to the insurance and re-insurance industry, either as staff employees or as consultants.

2.

ACTUARIES assemble and analyze data to estimate the

probability and likely cost of the occurrence of the event such as death, sickness, injury, disability, or loss of property.

3.

ACTUARIES also address financial questions, including those

in which theres a requirement to produce a certain income and the way in which a company should invest resources to maximize its return on investments.

4.

Using their broad knowledge, ACTUARIES help to design and price the insurance policies, pension plans and other financial strategies in a manner which will help ensure that the plans are maintained on a sound financial basis

5.

ACTUARIES are an expert who performs actuarial analysis of

insurance rates, rating procedures, rating plans, and schedules of insurance premiums. These are professionals who are experienced in reviewing and analyzing insurance operation, reserves and underwriting procedures and providing technical assistance regarding actuarial matters to policy examiners and other technical staffs.

6. In other words they are the people who ascertain in advance the uncertain events that could take place in future and come to a financial conclusion.

SOME OF THE NOTABLE ACTUARIES:

HARALD CRAMER:

Swedish actuary and probabilistic notable for his contributions in the area mathematical statistics, such as the CramrRao inequality (Cramr 1946). Professor Cramr was an Honorary President of the Swedish Actuarial Society (Kendall 1983).

JAMES DODSON: Head of the Royal Mathematical School, and Stone's School, Dodson built on the statistical mortality tables developed by Edmund Halley in 1693 (Faculty and Institute of Actuaries 2004).

EDMOND HALLEY: While Halley actually predated much of what is now considered the start of the actuarial profession, he was the first to mathematically and statistically rigorously calculate premiums for a life insurance policy (Halley 1693).

JAMES C. HICKMAN: Notable actuarial educator, researcher, and author (Chapman 2006).

DAVID X. LI: a Canadian qualified actuary who in the first decade of the 21st century pioneered the use of Gaussian copula models for the

pricing of collateralized debt obligations (CDOs). The Financial Times called him "the worlds most influential actuary,"

EDWARD ROSE MORES: First person to use the title actuary with respect to a business position (Ogborn 1956).

WILLIAM MORGAN: Morgan was the appointed Actuary of the Society for Equitable Assurances in 1775. He expanded on Mores's and Dodson's work, and may be rightly considered the father of the actuarial profession in that his title became applied to the field as a whole Founder and first president of the Casualty Actuarial Society (CASF 2008).

ELIZUR WRIGHT: American actuary and abolitionist, professor of mathematics at Western Reserve College (Ohio). He campaigned for laws that required life insurance companies to hold sufficient reserves to guarantee that policies would be paid (Stearns 1905).

Remuneration

The credentialing and examination procedure for becoming a fully qualified actuary can be intensely demanding. Consequently, the profession remains very small throughout the world. As a result, actuaries are in high demand, and they are highly paid for the services they render (Simpson 2006). In the UK, where there are approximately 9,000 fully qualified actuaries, typical post-university starting salaries range between GBP 25,300 and 35,000 (approx. US$50,100US$69,300 c. January 2008) and newly qualified actuaries in insurance companies typically earn somewhere between 60,000 and 75,000 (approx. US$93,100US$116,900 c. January 2010) per year. Many successful actuaries earn over 100,000 a year (approx. US$198,000 c. January 2008). These reflect nationwide salaries and numbers are likely to be higher in London or in the South East of England (Lomas 2009).

Conclusion:

In conclusion we can say that actuarial techniques provide powerful tools to better manage and regulate the affairs of a general insurance company. This fact is now recognized by IRDA. Prudent regulations help all the stakeholders. Though not mandatory required, Actuaries are also used for reviewing / framing reinsurance arrangement. They also help in the analysis of the effect of policy excess and bonus/malus. They can help in predicting investment outcomes.