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  • Kalpesh Agrawal

What does an Actuary do?

In 1968, UK Actuary Frank Redington said:


"As a profession, we are apt to be accurate, cautious, consistent, and reticent, and in these lies our strength; but if they do not leave enough room for impulse and imagination, they can be a weakness. The Actuary who is only an Actuary is not an Actuary."


Actuaries are serving their expertise in wider areas.


In this article, I will discuss both Traditional and Non-Traditional Actuarial areas.


Insurance Industry 
    Pricing:
    Reserving:
    Actuarial Valuation:
    Develop and manage insurance products:
    Statutory reporting:
Description of a Qualified Actuary (By International Actuarial Association)
Specific Health Actuary roles:
Specific Enterprise Risk Management (ERM) Actuary roles:
List of roles where Actuaries are working:
    

Traditional Areas:

Insurance Industry


Pricing:

Actuaries determine the product features and pricing of products.

Product Pricing (Rate making) is the determination of what rates, or premium, to charge for insurance.

The pricing process includes many factors, costs, and profits, competition level, customer preferences, etc.


Reserving:

In Insurance companies, Actuary's job is to determine how much any insurance company needs so that it can pay all claims that are made in the future.

Reserving is very crucial for any insurance company. As per the definition given by CAS, Reserving is the process of evaluating, reviewing, and estimating unpaid claims within insurance, reinsurance, and self-insurance.


Actuarial Valuation:

The purpose of Actuarial valuation is...

To calculate the "Present Value" of payments that the company is liable to make to employees in the future as part of an employee benefit plan.


Why companies need Actuarial Valuation?

  • Indian GAAP mandates that liability is recorded in the financial statements in respect of employee benefit schemes under AS 15 or Ind AS 19, as applicable. These accounting standards require that you perform an actuarial valuation to estimate the liability and make other disclosures as required by the accounting standard.

  • If your company is an India-based subsidiary of an international parent, then you may be required to report under the GAAP applicable to the parent company. Depending on where the parent company is located, you may need to report under US GAAP (ASC 715), IAS 19 or FRS 17.

Develop and manage insurance products:

Actuaries analyze different statistical information to estimate mortality, morbidity, accident, and retirement rates.

Insurance products are built with the customers in mind. Insurance companies often need new products to respond to a growing market.


Statutory reporting:

Statutory reporting is a mandatory submission of financial and non-financial information to a government for all insurance companies.

Actuaries prepare a report on the profits of the company for the financial year.


Description of a Qualified Actuary (By International Actuarial Association)

A qualified actuary is a professional trained in evaluating the current financial implications of future contingent events. It is the actuary’s job to assist in the scientific analysis and quantification of risks. Expertise in understanding the underlying business dynamics, backed by training in economics, finance, demographics, statistics, and risk management, helps ensure that actuaries build models that best use the available information. In general, actuaries excel in problem-solving. Actuaries are equipped to help their clients and employers to make informed choices.

Actuaries work with financial and other institutions to measure, manage, and mitigate risks. Financial institutions accept risks (such as liabilities arising from death, auto accident, legal responsibility, outliving one’s assets) from individuals or other companies for commercial reasons. By pooling large numbers of these risks, the financial institution reduces but does not eliminate, the variability of their total cost. Actuaries use statistical models and analysis to enhance their understanding of this variability and the risks inherent in the assets used to back these promises.

For example, in the context of insurance, actuarial skills are used in establishing premiums, policy and claim liabilities, and appropriate capital levels. In other contexts, these skills are used to evaluate pension plan liabilities and determine the level of contributions required to finance pension, health care, and social insurance programs. Non-financial institutions can also benefit from the advice of actuaries.


Specific Health Actuary roles:

  • Catastrophic claim

  • Health utilization, benchmarking and cost trend forecasts

  • Health risk status analysis

  • Critical Illness study

  • Predictive modelling and return on investment on desease management

  • Medical provider reimbursement analysis

  • Population disease prevalence forecasts

  • New medical technology efficiency studies

  • Behavior change studies related to health issues

  • Wellness and preventive care impact studies

  • Evidence based treatment protocols

Specific Enterprise Risk Management (ERM) Actuary roles:

  • RIsk management responsibilities/CRO functions

  • Creation of financial condition report

  • Preparation of company risk models

  • Evaluating impact of acquisition on risk profile of company

  • Performing stress test

  • Valuation of risks and risk interactions

  • Valuation of risk mitigation solutions

  • Execution and observation of risk mitigation programs

  • Reporting to investors, stakeholders and rating agencies on ERM programs

  • Advising on setting company risk appetite and risk limits

  • Creation of ORSA (Own Risk and Solvency Assessment) reports

  • Incorporate a complex model human behaviour0

List of roles where Actuaries are working:

  • Make estimation for unpaid claim liabilities, unearned premium and other estimated liabilities

  • Insurance product pricing

  • Predict retention of policyholders

  • Surrender value calculation

  • Management of pooled savings products, such as with profit and without profit products

  • Manage reinsurance program designing

  • Group life underwriting

  • Solvency calculation and preparation of reports

  • Prepare different types of internal models like Pricing models, Asset-liability modelling, Persistency models etc

  • Strategic asset management and capital management

  • Calculation of Embedded value

  • Involve in corporate strategy and planning

  • Setup reserves

  • Catastrophic modelling

  • Calculation of implicit debt

  • Valuation of assets/liabilities

Written by: Kalpesh Agrawal (Jr. Actuarial Officer - IIB)

Connect with me: kalpeshagrawal2000@gmail.com







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