actuary india april 2013

8/16/2019 Actuary India April 2013

1/24

A P R I L

2 0 1 3

V O L . V I S S U E 4Pages 24 ` 20

For Private Circulation Only


2/24

V I S I O N

V A L U E

MISSION

VISION, MISSION AND VALUE STATEMENT(Excerpts from the book: Bootstrap leadership – 50 ways to break out, take charge, and move up by Steve Arneson)

Vision & Mission provides purpose and direction to an organization and paves way for road to success

VISION – Vision is the dream – the future state, where you want to go. Think of it as the why – as in, “Why does ourgroup exist?” The vision should be aspirational and motivational; something the team can rally around. . . . . . . Aimhigh and make it aspirational. A great vision can unify a team and give its members a reason to come to work everymorning.

MISSION - Mission is the goal: the objective in front of you. Think of it as the what – as in: “What are we trying toaccomplish?” The mission should be challenging and should describe the business you’re in and the customersyou are trying to serve (whether internal or external). The mission should be connected to the vision; that is, byaccomplishing the mission, you move closer towards making the vision a reality.

DEVELOP STRATEGY – Think of Strategy as the how – as in “how are we going to complete the vision?”. Strategydescribes the speci c plans taken to meet the objective, and should be clear and measurable. Good strategyincludes detail about how the work will be accomplished, and includes resources, responsibilities, budget, metrics,and milestones.

VALUES - Value statements are often referred to as “guiding principles”. A value statement is an expression of acompany’s or individual’s core beliefs. It allows for the company’s staff to be aware of the priorities and goals of thecompany.

The value statement, along with a mission and vision statement forms the corporate culture and climate.

VISION MISSION VALUEIAI to be globally well recognisedprofessional organisation, developingenduring thought leadership tomanage uncertainty of future

nancial outcomes.

To educate/train risk professionals

• To enhance and maintain high pro -fessional standards

• To shape Public Policy and Aware -ness

• To engage with other professional/

regulatory/government bodies

• To promote/build IAI as a respect -ed Brand of risk managementglobally

• To promote Research, to advance

actuarial science/application

Integrity

• Respect for others’ views

• Accountability

• Continuing learning/Research

oriented learning

• Transparency

• Be responsive/ sensitive

COUNCIL OF INSTITUTE OF ACTUARIES OF INDIA,IN ITS MEETING ON 24 TH AUGUST, 2012 ADOPTS VISION, MISSION AND VALUE STATEMENT


3/24

3The Actuary India April 2013

C O N T E N T S

For circulation to members, connectedindividuals and organizations only.

www.actuariesindia.org

C O N T E N T S

COUNTRY REPORTIndonesia byPranshu Maheshwari& Anshuman Anand

SHILPA’S PUZZLE

SUDOKU

CAREER OPPORTUNITY For RESEARCH PROJECT - Institute of

Actuaries of India.

For Actuary – Sriram General InsuranceCompany Limited

Disclaimer :Responsibility for authenticity of the contents or opinions expressed in any material published in this Magazine is solely of itsauthor and the Institute of Actuaries of India, any of its editors, the staff working on it or "the Actuary India" is in no way holds responsibilitythere for. In respect of the advertisements, the advertisers are solely responsible for contents and legality of such advertisements andimplications of the same.The tariff rates for advertisement in the Actuary India are as under:

Back Page colour ` 35,000/- Full page colour ` 30,000/- Half Page colour ` 20,000/-

Your reply along with the details/art work of advertisement should be sent to [email protected]

11

4 REPORTAGE• 15 th GCA Plenary Sessions

byR. Jayaraman

FACE TO FACE WITHAmit Malhotra

COMPANY PROFILESwissRe

FEATURES• Companies Bill 2012: Corporate

Governance in insurancebyC.L. Baradhwaj.

• Joint Venture (IAS 31) to JointArrangements (IFRS 11) –an accounting transformby Ankur Bharuka

• Customized ReinsurancebyHemal Sarnobat

9 22

21

12

22

10

11

ENQUIRIES ABOUT PUBLICATION OF ARTICLES OR NEWSPlease address all your enquiries with regard to the magazine by e-mail at [email protected].

Kindly do not send it to editor or any other functionaries.

Printed and Published monthly by Gururaj Nayak, Head of the Operation, Institute of Actuaries of India at ACME PACKS AND PRINTS(INDIA) PRIVATE LIMITED, A Wing, Gala No. 55, Ground Floor, Virwani Industrial Estate, Vishweshwar Nagar Road, Goregaon (E), Mumbai-63.for Institute of Actuaries of India : 302, Indian Globe Chambers, 142, Fort Street, Off D N Road, Near CST (VT) Station, Mumbai 400 001.• Tel +91 22 6784 3325 / 6784 3333 Fax +91 22 6784 3330 • Email : [email protected] Webside : www.actuariesindia.org

For circulation to members, connectedindividuals and organizations only.

Chief EditorTaket, Nick

Email: [email protected]

Editor

Sharma, SunilEmail: [email protected]

Puzzle EditorMainekar, Shilpa


Marketing ManagerRautela, Binita


LibrarianDamre, Akshata


COUNTRY REPORTERS

Krishen, SukdevSouth Africa


Frank MunroSrilanka


Pranshu MaheshwariIndonesia


Anshuman AnandIndonesia


Smith, John LaurenceNew Zealand

Email: Johns@ delitylife.co.nz

Sharma, Rajendra PrasadUSA


Cheema, NaumanPakistan


Leung, AndrewThailand


Balgobin, VijayMauritius



4/24

4 The Actuary India April 2013

15 th GCA PLENARY SESSIONS

lenary Session [P1]This was the rst Plenary Session

of the day and presenters discussedDifferent Factors in uencing EnterpriseRisk Management Framework.

Chairperson : Pashupati Kumar, Director– Deloitte and Touche Assurance andEnterprise Risk Services India PrivateLimited, India

Panel Members : Name of Members /Presenters :

Frank Ashe, Associate ProfessorMacquarie University Applied FinanceCentre (Australia),

Jill Hoffman, President of SingaporeActuarial Society (Singapore)

John Holden, CEO Canara HSBC OBC Life(India)

Brief about the session:

The session was chaired by PashupatiKumar, Director – Deloitte andTouche Assurance and Enterprise

by R Jayaraman

Organized by : Institute of Actuaries of India

Venue : Hotel Grand Hyatt, Mumbai

Date : 19 Th February 2013

P

About the Author

[email protected]

R Jayaraman is the member ofInstitute of Actuaries of India (IAI). Hecurrently, heads the Actuarial- ProductDevelopment in Kotak Life Insurance.

Risk Services India Private Limited,India. First presentation was by FrankAshe , Associate Professor MacquarieUniversity Applied Finance Centre(Australia). He explained the role of

behavioural economics in the frameworkof enterprise risk management and howbiases affect belief formation, businessand economic decisions and humanbehaviour in general. Controlled andautomatic brain processes, culture,beliefs, trust and trustworthiness,fairness, ambiguity and disgust wereamong the key factors discussed indetail during the presentation.

Second presentation was by Jill Hoffman ,President of Singapore Actuarial Society(Singapore). Topics covered in thepresentation were “Risk Based Capital2 (RBC2)” framework proposed by

Pashupati Kumar

Frank Ashe

The 15 th Global Conference of Actuaries, held from 17 th February to 19 th February, 2013 at hotel Grand hyatt, Mumbaiwas organized by Institute of Actuaries of India (IAI ). The conference attracted more than 76 illustrious and eminent global

speakers from all the areas of actuarial discipline and was well attended by actuaries as well as non actuaries all over theglobe. The theme of the conference “Waves of Reforms... Oceans of Opportunities” was an award winning entryof Ajai Kumar Tripathi. J. Hari Narayan, Chairperson, Insurance Regulatory and Development Authority delivered the keynote address on the rst day, 18 th February, 2013, which was followed by concurrent Sessions viz; (Life Insurance, GeneralInsurance, Health Care Insurance, Pension, other Employee Bene ts, and Social Security). This was followed by Global RoundTable and Plenary Sessions on the second day, 19 th February, 2013 under the various actuarial practice areas. We arepresenting here Reportage on Plenary Sessions. (Reportage on Concurrent sessions have been published in Actuary IndiaMarch 2013 Issue.) More information on the presentations, photos can be downloaded from the Institute of Actuaries ofIndia's professional website http://www.actuariesindia.org

REPORTAGE

15th

GCA


5/24


Monetary Authority of Singapore (MAS)and Financial Advisory Industry Review(FAIR) and its implications for Asia-Paci c. Ms. Hoffman highlighted the keyproposals in the new RBC2 frameworkwith its advantages and disadvantagesover the current approach. On the otherside of the presentation, she discussed

critical objectives of the nancialadvisory industry review. Some of the keyobjectives were to raise the competenceand quality of nancial advisoryrepresentatives, make nancial advicea dedicated service, lower distributioncosts of insurance products and topromote a culture of fair dealing.

Last presentation of the session was byJohn Holden , CEO Canara HSBC OBC

John Holden

Life (India). He discussed the impactof digital age on various factors relatedto insurance such as distribution, risk

assessment and servicing. He alsohighlighted the challenges posed bydigital age at the end of the presentation.

Plenary Session [P2]

The session on “Evolving regulatorylandscape and implications forinsurers” was helpful in understandingthe impact on insurance industry due torecent regulatory changes.

Chairperson: Frank Ashe, AssociateProfessor Macquarie University AppliedFinance Centre (Australia)

Panel Member: Ashvin Parekh, Partnerand National Leader – Global FinancialServices, E&Y

Brief about the session:Mr. Parekh started his session withinteresting Macroeconomic overviewbrie ng audience about InsuranceSector’s contribution to Indian Economyand India being third most attractive FDIdestination in the world. He added aboutthe Evolution of Insurance Industry (Life& Non-Life), from being unregulated

sector with only public players till today.He mentioned that though the LifeInsurance sector has shown robust

Ashvin Parekh

growth, it has been facing headwinds.He took audience through how non-lifeindustry is yet to get that gear of growthand stability and also mentioned thatoverall there is signi cant opportunity ofgrowth in the insurance sector.

While talking about Evolving RegulatoryLandscape, he touched upon variousnorms on distribution channels allowed,IPO eligibility, Mergers & Acquisitions,various regulations on TraditionalLife products, and Non-Life insuranceindustry. He also mentioned thatReinsurance, the least regulated areaof the industry has now been regulatedby the IRDA. He quickly took audiencethrough how Health insurance industry isemerging.

After talking about the overall industry’sgrowth and implications of currentregulations, Mr. Parekh took theaudience a level further by talking aboutthe challenges that industry is facing andhow should we be able to make our wayforward with it.


The session on “Money Market, Liquidityand Credit Crunch” was important forthe participants looking at the recent

nancial crisis in European markets.

Chairperson : Ashvin Parekh , Partner

and National Leader – Global FinancialServices, E&Y

Panel Members : Frank Ashe, AssociateProfessor Macquarie University AppliedFinance Centre (Australia)


Frank started his session by introducingwhat money means. He explained tothe audience by using a blank piece ofpaper how monetary transactions takeplace. He mentioned, one wouldn’t evenneed to have the physical money, if otherpeople trust his/her credit then one can

just give bills to them and they can usethem to buy what they needed.

He then took the audience to thenext level where he explained howGovernment creates money either byprinting it or by putting physical moneyinto the economy by giving it to peopleor buying things from them. He furtherexplained in simple words why standardmoney de nition (or in other wordcurrency) is required and what is the roleof Central Bank.

He then talked about liquidity bymentioning how a positive amount inone’s bank account is a nancial assetfor him/her and a nancial liability forthe bank. How Banks and Central Bankensures that suf cient physical money iskept on hand keeping in mind that manytransfers can occur together.

The session ended with interestingQuestions & Answer session.

Plenary Session [P4]The session on “ Lessons from UKActuarial Professions' Project onDiscount rate ” gave detailed insightsinto the profession’s efforts on theparticular project in UK.

Mark Freedman

Chairperson : Mark Freedman , PresidentElect –Society of Actuaries (US)

Panel Members : Charles Cowling,Managing Director – JLT Pension Capital

Strategies (UK)Brief about the session:

The session started by specifying theobjectives in two simple questions – “Is

Jill Hoffman

R E P O R T A G E

1 5 t h

G C A


6/24


it appropriate for the Actuarial Professionto have different actuaries in differentpractice areas producing very differentanswers to very similar questions?Is it possible to create a commonlanguage and transparent frameworkfor describing and determining discountrates and possibly reduce the diversity ofcurrent practice?”

Charles Cowling put down developing a

Charles Cowling

common language and framework todescribe current practices as one ofthe major objectives of the UK Actuarialprofession. He then went on to trace thehistory of discount rate framework listingout “Matching” and “Budgeting” as thetwo main families of calculations usedfor discounting liabilities. He contrastedthis with the set of concerns being facedcurrently while choosing the rate and

how practical constraints limit the purematching approach.

The matching approach mainly involvestransactions avoiding arbitrage andadequacy of assets, knowing that thesecan secure assets in market if perfectmatching can be achieved. Budgetingapproach, on the other hand, has moreto do with planning, based on assumedrates of return or funding, where markettransactions are not anticipated.

Charles then gave an overview of how thisissue is being looked at internationallyparticularly in Denmark, Sweden,Netherlands and the US. He thentouched upon the recent developmentsin the UK where the government issuedconsultation papers on Pensions andGrowth. He also discussed the smoothingand it’s expected effects.

In his concluding remarks Charlesmentioned that Matching and Budgeting

should produce essentially same answerif ‘expected’ relates to matching /replicating portfolio.

The session ended with interesting

Questions & Answer session relating toIndian scenarios.


The session on Actuarial OutsourcingIndustry and was important from theperspective of understanding thegrowth potential of the industry andkey ingredients required for ensuring

successful service delivery.Chairperson : V Balamurugan ChiefExecutive Of cer JLT (India)

Panel Members :

Liyaquat Khan, Immediate past-President, Institute of Actuaries of India(India)

Ankur Agrawal, Head of Actuarial functionat AXA Business Services (India)

Tassos Anastasiou, Chief Actuary -

Emerging Markets, RSA Group (UK)

Brief about the session. V Balamurugan was the chair-person of

V Balamurugan

the session and gave a presentation onkey factors driving the Indian Offshoringindustry – Availability of Talent, Cost ofoperations, quality of infrastructure andGovernment Policies. Then he spokeabout the growth in 2012 in the IndianIT-BPO industry and its contributionto GDP. Then he elaborated on howother Countries can be rated on IT-BPO

industry with respect to the key factorsstated above. Then he concluded thepresentation by explaining the keyproblems faced by the IT-BPO sector inIndia and the advantages India has overother countries.Liyaquat Khan , started the session with

a presentation on the Survey Conductedon Offshored Actuarial Work in India.The survey covered various aspectsof Actuarial Outsourcing industry. Itincluded the number of companiesoperating split by area of operation likeLife Insurance, General Insurance andPension. Number of people employed bygeographic location was covered as well.

He concluded the presentation with thereasons for outsourcing and the stepsthat can be taken to help the industryAnkur Agrawal gave a presentation onchallenges faced by Actuarial Service

Ankur Agrawal

Delivery from India. He started thepresentation with the motivation behindoutsourcing. Then he dwelt on variousaspects of Indian Outsourcing Story likedistribution by functional areas,geographical distribution of OutsourcingCompanies etc. Then he explained the

key challenges faced by the industry andthe Key Drivers of the Growth of theindustry. He concluded the presentationwith the steps we can take to meet thechallenges faced by the industry andwhat IAI could to help the industry.

Tassos Anastasiou gave a presentationon the key factors behind successfuloffshoring of work to India. He explained

Tassos Anastasiou

various models used for outsourcingwork to India ranging from Outsourcingto building a “Centre of Excellence”. He

explained the need for selecting an idealmodel taking into account the needsof the organization. Then he dwelt onthe challenges faced in outsourcing thework. He concluded the presentationLiyaquat Khan

REPORTAGE

15th

GCA


7/24


with expectations of customers andkey factors behind successful servicedelivery.


Chairperson:

Gary Josephson, President - CasualtyActuarial Society, US

Panel Members:

Darryl Wagner, Principal, DeloitteConsulting (US)

Michael Sherris, Professor of ActuarialStudies, University of New South Wales(Australia)

Moulay El Ghali El Boukfaoui VicePresident Insurance Client SolutionGroup, Numerix (US).

Marc Fakkel , Partner, Actuarial &Insurance Solutions practice, Deloitte

(UK)

This session was on Actuarial Frontiersand was chaired by Gary Josephson ,President - Casualty Actuarial Society,

Gary Josephson

US. This session gave a brief over viewon various other developments withregards to Actuarial Modelling- itsImportance, Applications, Managementand Implementation.

The rst part of the session was presentedby Darryl Wagner , Principal, DeloitteConsulting (US) on the importance

Darryl Wagner

of Advanced data analytics and the roleof the actuaries in it. He gave insightsabout the different types of analysis tools

and its applications in and beyond theinsurance industry.

Michael Sherris

The second part of the session waspresented by Michael Sherris , Professorof Actuarial Studies, University of NewSouth Wales (Australia) on Modellingand Managing Longevity Risks. The focusof the presentation was on effectivelymanaging the pricing and mortalityassumptions in the Pension/ RetirementProducts to manage and mitigating theRisks related to longevity.

The session was continued by MoulayEl Ghali El Boukfaoui Vice President

Moulay El Ghali El Boukfaoui

Insurance Client Solution Group,Numerix (US). The session gave a briefintroduction of the various EconomicScenario generators and Model riskinherited by the models.

The session was concluded by MarcFakkel , Partner, Actuarial & Insurance

Marc Fakkel

Solutions practice, Deloitte (UK) whogave a brief over view on Actuarial Modeldevelopments. He looked at developing

these models not just as applications butas function spanning through Finance, ITand Change Functions and gave ways toimplement change successfully.


This was last Plenary Session and thepresenter concentrated on reinsurancesolutions to various challenges facedby insurers. The presenters backedtheir idea/solution with the help of casestudies and facts .

Chairperson : Philip Scott, President -Institute and Faculty of Actuaries, UK

Panel Members :

David Alexander, Head of BusinessDevelopment, Asia - Swiss Re (Hong Kong),

Gavin Maistry, Munich Re (Singapore),

Jonathan Porter SVP & Chief PricingActuary International Markets RGAInternational (Canada)

David O’Brien- Deputy Managing Directorfor Asia Paci c, Scor Re (Hong Kong)


Philip Scott

The session was chaired by Philip Scott ,

President - Institute and Faculty ofActuaries, UK. The rst presentation wasby David Alexander, Head of BusinessDevelopment, Asia - Swiss Re (HongKong) who started with worldwide trendsin regulations pertaining to Risk BasedCapital and Solvency Regulations. He dida high level comparison of Solvency I andSolvency II and presented a case studyof Malaysia RBC Framework. Towards theend, he threw light on implications andrisks of changes to Solvency Regulationsin Asia.

The second presentation was given byGavin Maistry , Munich Re (Singapore).

Gavin Maistry

The talk was focused on how Reinsurancecan be used as a tool for Risk Mitigation.He demonstrated how Biometric Risk is

R E P O R T A G E

1 5 t h

G C A


8/24


David O’Brien

composed of Trend, Calamity, Basis andProcess Risks. He emphasized on BasisRisk with the help of a case study.

Gavin’s presentation was followed by apresentation from Jonathan Porter , SVP

Jonathan Porter

& Chief Pricing Actuary InternationalMarkets RGA International (Canada). Hispresentation revolved around protectionbusiness and role of reinsurers in it. Thepresentation justi ed the importance of

reinsurer in this business with the helpof case studies on Product Development,Experience Analysis and ElectronicUnderwriting.The session was wrapped up with thepresentation by David O’Brien - DeputyManaging Director for Asia Paci c, ScorRe (Hong Kong) wherein he comparedChina, Brazil and India on Life insurance

market growth outlook. The comparisonwas nicely structured covering likelihoodof regulatory changes, level of maturityin protection product coverage andpotential for micro insurance.

REPORTAGE

15th

GCA

PHOTO FEATURES - PLENARY SESSIONS


9/24


F A C E T O F A C E W I T H

Amit Malhotra has been with Swiss Re for the last ve years. Currently he heads the Risk Management unit of Swiss Re

Bangalore. They are a part of the Global Risk Management team of Swiss Re and are part of various Risk Assessment

activities within the Swiss Re world. Prior to this, he was working with Genpact as a Senior Consultant and was responsible for

handling two teams in Product Development and Experience Analysis for a US based insurance rm. He was with Genpact for

about three years. Prior to Genpact he was working with Max New York Life Insurance company, in the Actuarial Department

for three years and was involved in pricing, valuation and experience analysis. Amit Malhotra is a student member of IAI as

far as his educational background is concerned, he is a Masters in Statistics from Delhi University. In terms of his hobbies,

whatever free time he gets, he like to spend it with his wife and two kids.

[email protected]

AMIT MALHOTRAHead Risk Management, Senior Vice President,Group Risk ManagementSwiss Re Shared Services (India) Pvt. Ltd; Bangalore.

PERSONAL

What jobs and experiences have led you to your presentposition?

I started my career with Max New York Life in their ActuarialDepartment. I got involved in pricing, valuation and experienceanalysis. Worked there for three years and then I joined Genpact.I was given the responsibility of creating the experience analysismodels for Variable Annuity products for a US based insurance

rm. Later, I slowly moved into management roles whichmade me responsible for handling two teams in Gurgaon andBangalore. I worked there for almost three years as well before

deciding to join Swiss Re in their Bangalore of ce. In Swiss Re,I started with building their Life & Health actuarial support fromBangalore. Was in this role for four years and now have beengiven the responsibility of heading Swiss Re Bangalore’s RiskManagement function.

Describe your current roles and responsibilities?

As Head of Risk Management Bangalore, I am responsible forthe work that gets delivered out of the location. I am responsiblefor the people that work out of Bangalore and how they grow intheir careers. I am also responsible of nding out ways on howwe can add value to the Swiss Re organization as a whole.

What are the key qualities required in your position?

The key qualities required in my position would be goodmanagement skills, good communication skills and goodunderstanding of the people that you work with. Also, you needto be aware of the strategy that your company wants to run sothat you can contribute towards it.

PROFESSION

Please describe a typical day at work?

My days are very interesting at work. On a typical day I would meetand talk to a lot of people, both locally and around the world. Thetopics of discussion range from how to run actuarial processesef ciently to how to make a team of actuaries participate in a

dancing competition. It also involves some serious resourceplanning and project management discussions.

What can you tell me about the employment outlook in your occupational eld?

I feel the employment outlook should improve. There are morecompanies who want to enter India as there is a huge marketto tap into. As the market is largely untapped, these companieswould require strong Actuarial and Risk Management functionsto give the comfort to these companies that they are writingpro table business. Hence, they would require very brightpeople who can contribute to the success of these companies.

How much demand is there for people in this occupation?How rapidly is the eld growing?

I can give you a Swiss Re Bangalore perspective. We have grownquite a bit in the past few years and are still growing. More than50% percent of our growth has happened in the last two yearswhich talks for itself on the in-organic growth that Swiss Re hasseen. We still see a strong demand on the experienced Actuarialresources.

What do you consider to be the key areas where actuariesadd value to the business?

I think the key areas are still pricing and valuation. I think intoday’s environment, actuaries need to invent new techniques/models that can better explain this ever changing world. Theyneed to build robust models and also ways in which they can beexplained in a simple manner.

INSURANCE INDUSTRY IN INDIA

What trends do you see for this industry in the next 3 to5 years?

I think there will be more life and health companies coming intothe market. I also feel that the non-life sector will also grow and

these companies will help in the overall economic growth of thecountry. I think the demand of experienced actuaries will groweven further and India will become a very exciting market towork in.


10/24


OFFSHORED ACTUARIAL WORK IN INDIA

Your current area of responsibility is managing actuarialwork that belongs to Insurance Entity of the UK. Can youexpand on this?

It is not only UK, we are doing actuarial work for UK, Europe,Asia, Australia, US and Canada. We are supporting theseregions in conducting their valuation activities both on Life andnon-Life side. For some regions we are responsible for certainlines of businesses and for others we are responsible for theentire markets. We do end to end valuation on a Stat, GAAP andeconomic basis. Part of my team is also involved in developingand maintaining these valuation models. We are also workingon Model Validation for pricing and costing models, conductingBusiness Risk Reviews and Risk Reporting activities.

What are your views on such work being carried out withinIndia: its volume, spread over countries, its challengesetc?

I think the approach that Swiss Re took that the Bangalore of ce just happens to be another of ce in another location of Swiss

Re has really worked well. We are doing tasks that get donein any other of ce of Swiss Re. We live the same values andget treated as equal partners. Today, we are part of almost allpriority projects running across the globe and are showcasing

the value that we are able to add. Off course there are challengesalong the way. There are legal challenges like kinds of servicesrendered or tax implications when dealing with some countries.There are regulatory challenges as there can be restrictionson certain work done out of the host country. There are alsolanguage challenges when dealing with countries where thereporting is not done in English. Dealing with different countriesalso leads to cultural challenges.

Any speci c challenges facing actuarial workers in this

area of employment within India?

One of the biggest challenges that actuarial workers faceis their inability to push back. They keep on taking more andmore work and committing themselves to targets which arevery tough to achieve. The good part is that most of them areable to achieve these targets but in the long run it becomesunsustainable. Another big challenge is around communication.I feel that communication plays a key role in the success of abusiness model. Particularly in the offshoring model it is of vitalimportance. The actuarial workers need to work on their “speakup” behavior. They need to share their views openly, challenge

the status quo and communicate effectively. I think we havea lot of intelligent people in India, they just need to pro lethemselves better.

OPPORTUNITY TO UNDERTAKE A RESEARCH PROJECTTe Advisory Group on Research and Publications, as a part of its research initiatives invitesEXPRESSION OF INTEREST from Members / Member lead groups/ Member lead Institutions as volunteers/ non-volunteers to take part/undertake the research project:

“D S PS B I ”

Allotment of projects would be based on the evaluation of the project deliverables,

timings, budget requirements and other details as furnished by the interested parties

in a prescribed format which can be downloaded from the following link: http://

actuariesindia.org/downloads/Expression%20of%20Interest_Form.docx

Please visit our website www.actuariesindia.org to nd Guidelines and

details at: Research and Publications tab>>> Research>>> Projects

Please furnish your details in the format ( form available at the

above mentioned link) and mail to:

[email protected] or call

Vinod Kumar, Head-Research at +91 22 6784 3319.

Last date to submit the proposal:15th May, 2013.

Tania Chakrabarti

Chair Person,Advisory Group on Research & Publications,Institute of Actuaries of India.

F A C E T O F A C E W I T H

CAREER OPPORTUNITY


11/24


OFFSHORED ACTUARIAL WORK IN INDIA - COMPANY PROFILE

The Swiss Re Group is a leading wholesaleprovider of reinsurance, insurance and otherinsurance-based forms of risk transfer. Dealingdirect and working through brokers, its globalclient base consists of insurance companies,mid-to-large-sized corporations and publicsector clients. From standard products to tailor-

made coverage across all lines of business,Swiss Re deploys its capital strength, expertiseand innovation power to enable the risk takingupon which enterprise and progress in societydepend. Founded in Zurich, Switzerland,in 1863, Swiss Re serves clients through anetwork of over 60 of ces globally and is rated"AA-" by Standard & Poor's, "A1" by Moody'sand "A+" by A.M. Best. Swiss Re reports strongnet income of USD 4.2 billion for the full-year2012 and celebrates its 150 Year Anniversaryin 2013.

Swiss Re began operations in Asia-Paci cin 1956 and has of ces in Sydney, Beijing,Shanghai, Hong Kong, Tokyo, Seoul, Singapore,Kuala Lumpur, Mumbai and Bangalore, whereit operates a global business processingof ce. Swiss Re has established a dedicatedRetakaful branch in Malaysia offering solutionsto Takaful operators worldwide. Additionally,Swiss Re is in a strategic partnership withVina Re, Vietnam’s leading reinsuranceprovider. Swiss Re was among the rst foreignreinsurers to enter China after the country

joined the WTO.

In these turbulent times, who knowswhat opportunities may blow your way?Crisis in the Eurozone. Global lack of con dence. Uncertainty. Unrest. In such a volatile economic climate,many people’s rst instinct is to run for shelter. But what if that meant missing out on fresh possibilities?

At Swiss Re, confronting uncertainty has been our business for 150 years. And now, in today’s evermore rapidly shifting risk landscape, our task is to be ever more agile and alert. We’re here to identifyemerging risks and opportunities alike, and enable our clients and brokers to look beyond the immediatechallenges. At Swiss Re, risk is our raw material; what we create is opportunity. See which way the wind is blowing at www.swissre.com

:

A Leading General Insurance Company (part of Shriram Group Companies Madras) with Rs.60,000 Crores turnoverand having Joint Venture with Sanlam; the largest Insurance Conglomerate of South Africa

REQUIRE - ACTUARY Quali ed/ Part quali ed Experienced Non-Life Actuary (FIA and/or FIAI) with very good knowledge required for Head Of ce

Jaipur. Would be responsible for following activities:• Reserving• Modeling • Pricing • Risk Management• Asset-Liability Management• Management Information• Analytical support for various business segments• Regulatory submissions (Financial Conditional Report, Economic Capital etc)• Adhoc projects and support

Responsibilities of the role will also include developing and evolving actuarial strategy in line with company objective,development of risk management function.

Candidates can apply online by sending their CV’s on: [email protected] subject line Actuary by May 25, 2013

Website: www.shriramgi.com

Shriram General Insurance Co. Ltd. E-8, EPIP, Sitapura, Jaipur - 302022. Rajasthan.

Tel. (O): +91-141 - 3928400. Fax: +91-141 – 2770693

C O M P A N Y P R O F I L E

CAREER OPPORTUNITY


12/24


COMPANIES BILL 2012:CORPORATE GOVERNANCE IN INSURANCE

by C.L. Baradhwaj

About the Author

[email protected].

C.L. Baradhwaj (CLB as he is popularlycalled) is currently the Senior VicePresident (Compliance), Chief RiskOf cer and Company Secretary ofBharti AXA Life Insurance CompanyLimited. A Company Secretary, aLaw Graduate and a Fellow of theInsurance Institute of India, CLB hasworked for 10 years in LIC and formore than 10 years in private lifeinsurance companies in the areasof Legal, Compliance, Taxation andSecretarial matters.

IntroductionCorporate Governance may be de nedas a set of systems, processes andprinciples which ensure that a companyis governed in the best interest of allstakeholders. It is the system by whichcompanies are directed and controlled.It is about promoting corporate fairness,transparency and accountability.Corporate Governance involvesregulatory and market mechanisms andthe roles and relationships between acompany’s management, its board, itsshareholders and other stakeholdersand the goals for which the Company isgoverned.

Principles of Corporate Governance

(a) Rights and equitable treatment ofshareholders – Companies mustencourage values and systems thatrespect rights of shareholders andhelp shareholders exercise thoserights. Communicating the rightsand encouraging shareholdersto participate in meetings is veryimportant

(b) Interests of other stakeholders – Other stakeholders includeCustomers, Employees, Investors,Creditors, Suppliers, Regulators,Communities, Policy makers etc. TheGovernance must ensure that theCompany grows after taking care ofthe interests of the stakeholders

(c) Roles and responsibilities of theBoard – The Board needs to besegregated from the managementand the roles and responsibilities ofthe members of the managementteam including the CEO must beclearly de ned. Management must

be required to be accountable tothe Board who must monitor theirperformance. While managementruns the Company, the Board oversees

it. The Board must have quali ed andcompetent persons to evaluate themanagement performance

(d) Disclosure and transparency – thisis a cardinal principle of Corporategovernance and includes publicdisclosures as appropriate, internalcommunications, other externalcommunications etc. Such adisclosure mechanism must enableall stakeholders to take an informeddecision

Provisions promoting CorporateGovernance under the Companies Bill2012

The Companies Bill 2012 proposing toreplace Companies Act, 1956, has beenpassed by Lok Sabha and is awaitingRajya Sabha’s approval. Let us examinethe key provisions of the Bill whichpromote Corporate Governance

Provisions relating to Directors

Independent Directors (Section 149(4))

Companies Bill 2012 mandates atleast1/3 rd of the Directors of listed publiccompanies to be independent directors.However Clause 49 of the ListingAgreement (applicable for companieslisted in any Stock Exchange) provides

that, where Chairman of the Board isnon-executive, atleast 1/3 rd of the Boardshall comprise of independent directors,and atleast ½ where the Chairman of theBoard is an Executive Director.

An independent director is de ned as aperson who does not have any pecuniaryrelationship with the Company or is notrelated to the promoters or managerialpersons and has not been an executiveof the Company during the preceding3 nancial years or is not a partner orexecutive during the preceding 3 yearswith any statutory or audit rm or alegal and consulting rm which renders

services to the Company or is not amaterial supplier or a person holdingequity shares of 2% or more in thecompany. Independence of the Boardpromotes good corporate governance.The Companies Bill has includedanother quali cation criterion – theindependent director should not havebeen a CEO or a non-pro t organizationwhich derives atleast 25% of its income

from the Company or CEO of a nonpro torganisation holding more than 2% in theCompany in which the director acts as anindependent director. An independentdirector shall hold of ce for a period of 5years and is eligible for being appointedfor one more term after which a coolingoff period of 3 years has been prescribed.

Independent Directors remove con ictsand bias in decision making, since theyare not related to Promoters or do not have

any material interest in the Company.Schedule IV of the Bill lays down the Codeof conduct for Independent Directors,including guidelines for professionalconduct, their roles, functions, dutiesand responsibilities

Directors representing smallshareholders (Section 151) – Inorder to promote the interests of smallshareholders, listed companies may haveone Director on the Board appointed byDirectors holding share not valued morethan Rs.20,000 or such sum as may beprescribed. This step promotes interestsof smaller stakeholders

Corporate Governance has become one of the cornerstones for a successfulmanagement of business. This subject is more relevant in insurance since theindustry handles substantial sums of Policyholders money and therefore needs touphold these principles. This article of CLB on Companies Bill 2012 and CorporateGovernance in Insurance speci cally focusses on the key provisions relatingto Corporate Governance as contained in the Bill as well as IRDA’s CorporateGovernance guidelines which are relevant for the Company Secretaries in insurance.

F E A T U R E S


13/24


Restrictions on number of directorships(Section 165) – not to exceed 20,out of which not more than 10 publiccompanies

Disclosures of interests by Directors(Section 184) : The Bill requiresDirectors to disclose their interests inany contract or arrangement which theCompany proposes to enter into. Furtherthe Director is required to stay away fromthe discussions happening in the Boardmeetings and cannot participate in anyvoting which happens in the meetings onsuch matters. This has to be speci callyrecorded in the Minutes. A Director isdeemed to be interested in an entitywith whom the Company enters intoan arrangement or a Contract, if suchDirector or groups of directors hold notless than 2% equity in such an entity.

Register of Contracts in which Directorsare interested to kept open duringAnnual General meeting for inspectionby the Shareholders. Non disclosure ofinterest by Directors does not renderthe contract void. It renders the contractvoidable at the instance of the companyand makes the director accountable forany secret pro t which he has made(Hely Hutchinson vs. Brayhead Limited(1968) 1 Comp LJ 263)

Loans to Directors (Section 185) :Companies are prohibited in grantingloans to Directors directly or indirectlyto any person in whom the director isinterested. This is aimed at promoting

nancial discipline

Related party transactions (Section188) : All related party transactions,including appointment of related partiesof Directors to any of ce or place or pro tin the Company) require the approvalof Board. In certain cases as may beprescribed, Shareholders approvalalso required (shareholders who areinterested in the related party transactionnot to participate in the discussion orvoting) in some cases.

Register of Contracts in whichdirectors are interested (Section 189)and Contract of employment withWhole time or Managing Director(Section 190) required to be kept openfor inspection by the Shareholders:

This promotes greater transparency inthe appointment of the key managerialperson. The Shareholders may questionwhere the terms of appointment as per

the Contract are different from the termsapproved by the Shareholders in theirresolution.

Restrictions on non cash transactionsinvolving directors (Section 192) :Where any transaction is proposed tobe entered into with a Director of theCompany or Director of the HoldingCompany or Director of the Subsidiary

Company for purchase of assets or saleof assets for consideration other thancash, approval of the shareholders ofthe Company as well as the concernedHolding or Subsidiary company shall beobtained.

Prohibition in Insider trading (Section195) and forward dealings in securitiesby Directors or Key managementpersonnel (Section 194): TheCompanies Bill 2012 has also introduced

provisions restricting Insider Trading byDirectors and Employee of the Companywho are privy to price sensitive insiderinformation and dealing in shares andsecurities of the Company based on suchinformation. Further, in order to prohibitunhealthy forward trading in shares byinsiders, Directors and key managementpersonnel are prohibited from engagingin forward contracts to buy or sell thesecurities of the Company, as suchtransactions could also be based pricesensitive insider information.

Provisions relating to appointmentand remuneration of Wholetime andManaging Director (Section 196):Companies Act contains provisionsfor quali cations, appointment,remuneration, removal etc. of theManaging Director and WholetimeDirectors. Approval of Shareholdersrequired in certain cases. This promotestransparency in the appointment andremuneration of the key managerialperson. Ceiling on managerialremuneration is calculated as apercentage of the company’s pro ts

Prevention of Oppression andmismanagement (Section 241) : On thebasis of complaint by a shareholder of theCompany that the affairs of a Companyare carried on in a manner prejudicial oroppressive to interests of shareholders,the National Company Law Tribunal

may investigate and take appropriateaction as it deems t. The CompaniesBill 2012 also recognises Class actionby Shareholders or Depositors of the

Company if the Company’s acts areprejudicial to their interests. The petitionfor class action before the Tribunal canseek for restraining the company fromcommitting any act which is ultra viresthe company or desist the company fromtaking any action based on a resolutionwhich was based on irregular facts.This is another step towards promoting

corporate democracyProvisions concerning holding ofmeetings

Procedure for adjournment of meetings(Section 103 read with Clause 49 ofTable F - Articles of Association) : Oneof the pillars of Corporate democracy isproper conduct of meetings and rulesrelating thereto. Detailed procedures laiddown for adjournment of meetings.

In respect of Shareholders’ meetings

and Board meetings, if a quorum(minimum number of members requiredto be present) is not present withinhalf an hour of the scheduled time forcommencement, the meeting standsadjourned to the same time the followingweek at the same place or at such otherplace the Board may decide. In theadjourned shareholders’ meeting, if thequorum is not present, the memberspresent shall be the quorum. In

adjourned Board meetings also if thereis no quorum, the Board meeting shalldecide the dates of further adjournedBoard meeting(s).

Chairperson may also adjourn a meetingafter it is convened if the time wasinsuf cient to complete the agendaitems. However, no business shall betransacted at any adjourned meetingother than the business left un nished atthe meeting from which the adjournmenttook place. When a meeting is adjournedfor thirty days or more, notice of theadjourned meeting shall be given as inthe case of an original meeting.

Procedures for assessing the sense ofthe meeting (Sections 106 to 110) –Details procedures laid down for votingby show of hands, polls etc. with the roleof Chairman to ensure that the decisionsare taken properly at the Shareholders’meetings. Persons holding share capitalrepresenting not less than 1/10 th of thetotal voting power can demand a poll

Maintenance of records of proceedingsof Shareholders meetings, Boards andthe Board Committees (Section 118) :

F E A T U R E S


14/24


The Act requires drawing up of Minutesof meetings of Shareholders, Board ofDirectors and the Board Committeesto be drawn within 30 days, signed bythe Chairman and preserved for futurereference. The Minutes of Shareholdersmeetings are open for inspection by anyShareholder. Under the Companies Bill2012, every listed Company is required

to le a report of the Annual GeneralMeeting within 30 days of holding themeeting with the Registrar of Companies

Detailed Financial statements to formpart of the Agenda papers for theAnnual General meeting (Sections129 & 134) : The Financial statementof accounts with Schedules formspart of the Agenda for the AnnualGeneral meeting. Extensive disclosuresare required to be made. Details of

employees drawing remuneration inexcess of the percentages speci ed, theCompany’s spend towards conservationof energy, foreign exchange out ow,technological absorption etc. need to bedisclosed along with Directors’ AnnualReport. The said Report shall contain aDirectors’ Responsibility Statement onthe true and fair representation of the

nancial position of the Company.

Corporate social responsibility

Corporate Social Responsibility(Section 135) : Companies Bill 2012has recommended constitution of aCorporate Social Responsibility (‘CSR’)Committee of Directors by Companieshaving a Net pro t of Rs.5 Crore or aNetworth of Rs.500 Crores or a Turnoverof Rs.1,000 Crores in a nancial year.This Committee will decide on theexpenditure of Companies for CSRactivities (not less than 2% of averagenet pro ts for preceding 3 nancialyears) and monitor the implementationof the CSR programme. This initiative isaimed at making business “sustainableand responsible” and looking beyondpro ts as the sole purpose of business.

Internal Audit and Statutory Audit &Audit Committee

Requirement of internal audit (Section138) for certain classes of Companies,prescribing quali cations for mandatoryStatutory audit of all Companies once ayear, provisions relating to appointment,quali cations and disquali cations ofauditors, provisions relating to tenureand rotation of Auditors etc. In order to

remove con ict, no audit rm having acommon partner or partners to the otheraudit rm, whose tenure has expiredin a company immediately precedingthe nancial year, shall be appointedas auditor of the same company for aperiod of ve years. Further the Act alsoprohibits the Statutory auditors fromhaving any other pecuniary relationship

with the Company of which they areacting as Statutory auditors

Audit Committee (Section 177) –Every listed company and such othercompanies as may be prescribed shallhave an audit committee comprisingof majority of independent directors(minimum strength of the Committee: 3).Audit Committee to oversee appointmentof statutory and internal auditors, reviewof nancial statements, evaluation of

nancial controls and risk managementsystems and monitoring end use of funds.Further the Companies Act 2012 alsoprovides for constitution of Nominationand Remuneration Committee forListed companies to recommend theappropriate remuneration package toDirectors, key management personneland other employees

Miscellaneous rights of Shareholders

Rights to inspect Register of Members

(Shareholders) and Register of Directors(Section 94) with their shareholdingsand taking copies thereof

Right to call for Extraordinary Generalmeeting (Section 100) on the requisitionof members holding atleast 1/10 th of thevoting rights

Agenda for Shareholders meetingto contain disclosure of interestsof Directors (Section 102) and keymanagement personnel and theirrelatives in matters to be moved in theGeneral meeting and the entities withwhich the Company proposes to enterinto a contract and in which entity any ofthe directors or their key managementpersonnel hold not less than 2% equitystake

Corporate Governance in insurance

IRDA’s Corporate Governance guidelinesare applicable to Insurance companies

in addition to the applicable provisions ofthe Companies Act, 1956. Some of theimportant requirements under CorporateGovernance guidelines are summarisedbelow

Con icts of interest

Auditors, Directors, Actuaries andother key managerial personnel areprohibited from holding positions whichare con icting with each other. This isto ensure that the business decisionsare taken without any bias. For example,the Appointed Actuary cannot takeresponsibilities of Claims function, sinceAppointed Actuary is required to evaluatethe impact of the variance betweenwith actual and expected claims andthe impact on the Company. Similarlythe Statutory auditors of the Companycannot have any other contract withpecuniary interest in the Company, asthis could con ict with rendering theaudit services.

Independence of the Board

While the Guidelines expect the board to

be broadbased and have independentdirectors in line with Clause 49 of theListing Agreement, till such time theinsurance companies are listed, aminimum of 2 independent directorshave been advised. Chief ExecutiveOf cer shall be a member of the Boardif the Chairman of the Board is non-executive, i.e. is not an employee of theCompany.

Board of Directors

The Board has been given theresponsibility of giving overall directionfor the business of insurer, addressingcon icts of interests, ensuringoverall compliance, fair treatmentof policyholders and employees anddeveloping a corporate culture.

Fit & Proper criteria and Deed ofCovenants to be signed by Directors

While Insurance Act prohibits commondirectorships between life insurancecompanies and prohibition of agent beinga director of an insurance company, theguidelines also expects the incumbentto have a clean track record and adeclaration is required to be taken fromthe Director before his appointment. Thisdeclaration has to be renewed on anyearly basis. In order to ensure that thereare no gaps in understanding the rolesand responsibilities, the Guidelines alsorequires every Director to sign a Deed of

Covenant with the company.Constitution of Committees

The following Committees of Directors aremandatory for an insurance company:

F E A T U R E S


15/24


(a) Investment Committee (formedunder the Investment Regulations)

(b) Audit Committee

(c) Risk Management Committee

(d) Policyholders Protection Committee

The non-mandatory Committees(optional) are Asset LiabilityManagement Committee, Ethics

Committee, Nomination Committee andRemuneration Committee

Investment Committee shall comprise ofa minimum of 2 non executive directors,Chief Investment Of cer, Chief FinancialOf cer and Appointed Actuary to overseethe performance of the Investmentfunction of the Company. The Committeeshall be responsible for laying down anoverall investment policy and operationalframework for the investment operations

of the insurer. The investment policy andoperational framework is recommendedby the Committee to the Board forapproval and is also responsible for aperiod review of the investment policy inline with the market changes.

Audit Committee is primarilyresponsible for periodic review of

nancial statements, atleast once ina quarter. Further the Committee isalso responsible for overseeing theprocess controls. The Committee alsooversees the performance of the internalaudit function. Further the terms ofappointment and remuneration ofany statutory auditors and Concurrentauditors are reviewed by this Committeeand recommended to the Boardfor approval. The Chairman of thisCommittee shall be an IndependentDirector and CEO shall not be a memberof this Committee.

Risk Management Committee overseesthe overall risk management function ofthe Company. The Chief Risk Of cer ofthe Company shall be responsible for riskmanagement and attends the meetingsof the Committee. This committeereviews risk registers prepared by theconcerned functions with the help ofCRO and the status of action plans tomitigate the risks

Policyholders Protection Committee isresponsible for overseeing the interests

of Policyholders of the Company.Normally this Committee is headedby an independent director thoughnot mandatory, since the Committee

represents Policyholders interests. Thegeneral agenda items include reviewof Customer complaints and Claimsperformance of the Company.

All mandatory committees shall meet4 times in a year and not more than4 months shall elapse between twomeetings

Asset Liability Management committee(optional) is responsible for reviewingthe asset liability management positionand strategy of the Company and advisethe company appropriately. Since this isan optional committee, some insurancecompanies have included this item inBoard Investment Committee or Riskmanagement Committee. A NominationCommittee is responsible for evaluationof the candidates for the post of ChiefExecutive Of cer or Managing director

and certain other key position. A duediligence is done and their suitabilityfor appointment is con rmed by thiscommittee. The appointment is made byBoard of Directors, subject to approvalby IRDA. A Remuneration committeeis responsible for recommendingthe remuneration for Chief ExecutiveOf cer or Managing Director forapproval by the Board, subject toapproval of IRDA. The responsibility ofEthics Committee includes monitoringcompliance programs of the company,acting as a channel for whistleblowercomplaints, advising the effectivenessof the compliance structure etc. In someinsurance companies, these functionsare clubbed with the Audit Committee.

Role of Appointed Actuary

The Guidelines also lay down the roleof an Appointed Actuary. He shall alsoful ll the ‘ t and proper’ criteria andaccordingly con rm that he is ‘ t andproper’ in writing to the insurer before heis appointed. He has the responsibilityof informing the Board of any non-compliance or a likely non-compliancewithin his knowledge. In case he feels theBoard does not take any action, he hasto inform IRDA. The Appointed Actuary isexpected to provide expert or technicaladvice to the management on matterssuch as solvency margin requirements,

nancial condition testing, identi cation

of material risks and management etc.Statutory auditors

The rm of Statutory auditors of insurancecompanies will have to possess a track

record of at least 15 years. One of thepartners must have a quali cation onSystems Audit. A cooling off period of 3years is given between 2 audit tenureswith the same insurer. Further onestatutory auditor cannot work with morethan 2 insurance companies at a time.

Disclosure requirements

The following disclosure requirementshave been prescribed alongwith annual

nancial statements:(a) Quantitative and qualitative information

on the insurer’s nancial and operatingratios, namely, incurred claim,commission and expenses ratios

(b) Actual solvency margin details vis-à-visthe required margin

(c) Policy lapse ratio for life insurers(d) Financial performance including growth

rate and current nancial position of the

insurer(e) Description of the risk management

architecture(f) Details of number of claims intimated,

disposed of and pending with details ofduration

(g) All pecuniary relationships or transactionsof the Non-Executive Directors vis-à-visthe insurer

(h) Details of the board composition(i) Number of meetings of the Board and

committees held during the year and thedetails of directors who attended

(j) Details of remuneration paid toIndependent directors

(k) Any other matters, which have materialimpact on the insurer’s nancial position.

Extensive guidelines on Disclosure normsin websites of insurance companies andOutsourcing by insurance companieshave been released by IRDA.

Whistleblower PolicyThe guidelines also require insurers tohave a Whistleblower policy in place. Thisis intended to act as a mechanism topromote voluntary reporting of possiblefrauds and non-compliances. Thewhistleblower can remain anonymous, ifhe wishes to.

“W HEN YOU STOP EXPECTING PEOPLE TO BE PERFECT ,

YOU CAN LIKE THEM FOR WHO THEY ARE.”

DONALD M ILLER

F E A T U R E S


16/24


JOINT VENTURE (IAS 31) TO JOINT ARRANGEMENTS (IFRS 11) – AN ACCOUNTING

TRANSFORMby Ankur Bharuka

About the Author

[email protected]

Ankur Bharuka is a quali ed charteredaccountant and is also actuarystudent with student membership no.as 22692. He has cleared 3 papers ofactuary i.e. CT 1, CT 2 and CT 7

IntroductionOn 12 th May, 2011 IASB issued followingnew standards covering consolidation

and related areas:• IFRS 10 Consolidated Financial

Statements

• IFRA 11 Joint Arrangements

• IFRS 12 Disclosure of Involvementwith Other Entities

• IAS 27 Separate Financial Statements(revised 2011)

• IAS 28 Investments in Associates andJoint Ventures (revised 2011)

Effective date for these standards as setby IASB is, for the annual period beginningon or after 1 st January, 2013. Thesestandards replace old standards IAS27 - Consolidated & Separate FinancialStatement s, IAS 28 – Investments in

Associates IAS 31 - Interest in jointventure s and Interpretations SIC 12- Consolidation – Special PurposeEntities and SIC 13 - JCE-Non monetaryContributions by Venturers

The purpose of issuing IFRS 11 was toremedy two aspects of IAS 31:

1. Under IAS 31, Structure of thearrangement (i.e. whether thearrangement is through a separateindependent entity or just a strategicalliance) was the only determiningfactor for accounting (i.e. eitherequity method of accounting orproportionate consolidated method)and

2. Under IAS 31, an entity had a choiceof accounting treatment for interestsin Jointly Controlled Entities (JCE).This choice gave rise to differentaccounting policy being adopted

On 12 th May, 2011, IASB issued a set of new standards on accounting anddisclosing information involving other entities. The work on revising accountings forconsolidation and involvements with other entities was on IASB’s agenda for a long

time. One of the new standards from the set is IFRS 11 Joint Arrangements whichconcentrates on de ning, classifying and accounting for joint arrangements. Theissue of IFRS 11- Joint Arrangements is a rst major revision of IAS 31 – Interest in

Joint Ventures since it was issued in the year 1990. This article elaborates salientfeatures of IFRS 11 Joint Arrangements and IAS 28 Investments in Associates and

Joint Ventures (revised 2011) and also highlights new requirements and changesmade by these standards vis-à-vis their previous standards. Read on…

by companies and resulting is non-comparable nancials statements.

Joint Arrangements (JA):

Joint Arrangements is an arrangementin which two or more parties have jointcontrol. To have joint control partiesshould have contractually agreed to sharecontrol over an arrangement i.e. theirunanimous consent is required to makedecisions on activities that signi cantlyaffects return of the arrangement.

Control is not de ned in IFRS 11. Butreference can be made to the de nitionof control given in IFRS 10 Consolidated

Financial Statements which states that“an investor controls an investee whenthe investor is exposed, or has rights,to variable returns from its involvementwith the investee and has the ability toaffect those returns through its powerover the investee.”

The standard provides two step analysisof joint arrangement:

1. Assessing existence of collectivecontrol over the arrangement and

2. Contractual arrangement gives twoor more parties joint control over thearrangement.

Example:

A, B and C establishan arrangement withvoting right as A = 50%,B = 25%, C = 25%and the contractualarrangement speci esthat at least 75% of

voting is required tomake a decision onrelevant activity. In thiscase any combination

of investor i.e. A & B or A & C can takerelevant decision so collective controlexist but for establishment of joint controlthe contractual arrangement betweenthe parties would need to specify whichcombination of the parties is required to

agree unanimously to take the decisionsabout the relevant activities of thearrangement. But if the voting rights are A= 50%, B = 30% and C = 20%, then thereis only one combination i.e. A & B to takedecision on relevant activities so eventhough there is no explicit contractualarrangement to jointly control but itis implied that A & B jointly control thearrangement.

Type of Joint Arrangement:

Joint arrangements are classi ed into 2types and the accounting model of the

joint arrangement depends on its type.

1. A Joint Operation (JO) is a jointarrangement whereby the parties thathave joint control of the arrangementhave rights to the assets, andobligations for the liabilities, relatingto the arrangement. These partiesare called joint operators.

2. A Joint Venture (JV) is a joint

arrangement whereby parties thathave joint control of the arrangementhave rights in the net assets of thearrangement. These parties arecalled joint venturers.

F E A T U R E S


17/24


Rights and obligations of the parties tothe joint arrangement determine the typeof joint arrangement.

Consider following points while assessingthe type of arrangement:

1. Structure of joint arrangement

2. If joint arrangement is through aseparate vehicle:

a) Legal form of separate vehicleb) Terms of contractual arrangement

c) Other facts & circumstances

Joint arrangement not through a separatevehicle is always Joint Operation

Joint arrangement through separatevehicle can be Joint Operation or JointVenture which will depend on legal form,the contractual arrangement and otherfacts and circumstances.

In Indian scenario, companies registeredunder The Companies Act, 1956 andother corporate bodies having separatelegal entity would meet the criteria of

joint venture. For partnership rms andother arrangements, further analysis willbe required to be carried out to ascertain

the type of arrangement.

Accounting of joint ventures in the booksof joint venturers:

In consolidated nancial statement:

• Joint Venturer shall recognise itsinterest in JV as an investment anduse equity method in accordancewith IAS 28

• The investment in JV shall be initiallyrecognised at cost and subsequentlyadjusted for the post-acquisitionchanges in the share of the jointventure’s net assets

• Joint Venturer’s share of pro t / lossand other comprehensive income ofthe joint venture is included in thepro t / loss and other comprehensiveincome, respectively

In separate nancial statement:

• Joint Venturer shall account itsinterest in JV as an investment inaccordance with IAS 27: SeparateFinancial Statements (2011) i.e. atCost or as per IFRS 9/IAS 39

Accounting of joint operation in thebooks of joint operators:

In both, consolidated and separatenancial statement, a joint operator shall

account for his share of assets, liabilities,revenue and expenditure inaccordance with relevantstandard applicable to thoseassets, liabilities, revenue andexpenditure

Accounting of transactionsbetween joint operator and joint operation:

• When the joint operatorcontributes assets to jointoperation, it shall recognizegain / loss to the extent of other

party’s interest in JO

• When the joint operator purchasesassets from joint operation, it doesnot recognize its share of gain/loss

until those assets are sold to thirdparty

Accounting by other parties to the jointarrangement:

1. In case of joint venture:

• In consolidated nancial statement,the party that participates in jointventure but does not have control,

shall account for its interest inaccordance with IAS 28 (revised2011) if it exercises signi cantin uence, else account it inaccordance with IFRS 9/IAS 39.

• In separate nancial statement, if theparty exercises signi cant in uencethen it can apply paragraph 10 of IAS27 (revised 2011) i.e. at cost, elseapply IFRS 9/IAS 39.

2. In case of joint operation:

• If the party has the same interest asthat of joint operator, then the partyshall account its interest in jointoperation in a similar way as that ofthe joint operator (as given above),else apply those standards which areapplicable to that interest (i.e. IAS 28(revised 2011) or IAS 39/IFRS 9).

Conclusion:

The accounting under new standard isPrinciple based and not Structure base

(i.e. the legal form of the arrangement isnot a deciding criteria for accounting butRights and Obligations of the parties tothe arrangement decides accounting of

joint arrangements).

IFRS 11 would have signi cant impacton accounting for joint arrangements. Itwould majorly impact:

1. Jointly Controlled Entities whichcurrently follow proportionateconsolidation method of accounting,

but subsequent to application of IFRS11 will meet the de nition of jointventures and will have to adopt equitymethod. And

2. Jointly controlled entities whichcurrently follow equity method ofaccounting, but will subsequentlybe treated as joint operation asper IFRS 11 and will have to adoptproportionate consolidation method.

Indian companies will be impacted by

these standards when these will benoti ed by ministry of corporate affairsunder Ind-AS framework.

F E A T U R E S


18/24


CUSTOMIZED REINSURANCE

Introduction :A customized reinsurance is areinsurance transaction involving risktransfer where the parameters of risk

transfer are tailored depending on theobjective of the transaction.

z Main role of all reinsurance

Protection of Balance Sheetby managing peak risks andexposures (protection againstlarge losses)

Bring stability over the cycleand protect capital base bytransferring selected risks

Spread risk

Manage Cash Flow

z “Traditional” rei nsurance

Individual lines of business (Fire,Marine etc) - increasingly smallersegmented boxes

Typically for 12 month period

Often commodity-likez “Customized“ reinsurance

Holistic and yet speci c parameterfocus

Pooling of covers to take advantageof correlations (Diversi cationBene t by protecting variousclasses of business)

Customized solution (Costeffective and Measurable)

Stability in purchase of protectionrather than commodity like (Longterm planning approach)

by Hemal Sarnobat

Product Offerings:

v Nearly any reinsurance productthat falls outside of the “traditional”category.

v Often combines elements oftraditional reinsurance with ideasfrom other nancial disciplines butalways ensures a risk transfer thatis quanti able

[email protected]

Hemal Sarnobat is a student memberof the IAI. He is currently working inProperty & Casualty ReinsuranceIndustry.

About the Author

Inability to place, ‘hard to model’ or‘uninsurable risks’

As a complement to traditional coveror captives

Potential lower overall price… usually

a sharing of the results

Facilitate exit of business line

Mitigate or eliminate parts ofacquired books of business

Can be a form of self insurance butwith a Capital / Cash protection

What is the future?

Transparency continues to increase.

Requirement for increased risktransfer levels.

Innovation will continue.

Capital market solutions will continueto grow.

Regulators and Accountants willlook to the US and Europe forguidance how to handle customizedreinsurance products – IFRS, USGAAP etc

Effective Risk Management to include Traditional and Customized

Customized Reinsurance -: Range of Solutions

Aggregate XOL Loss Portfolio Transfer Securitization

Capital Relief QS Captives Adverse Development Cover

Capital Gearing Contingent Capital Weather Derivative

ILW covers Cat Bond Double Trigger Covers

Prospective re/insurance

• Excess of loss re/insurance • Can be 1, 3 or 5 year period

• Quota-share re/insurance • Can be combined with pro t sharing

• Single line, multi-line covers

• Tailor-made risk retention & capacity

Exit strategies for corporate captives

• Portfolio transfer • Economic nality through run-off

• Legal nality through portfolio transfer and sale

• Support for exit and/ or M&A transactions

Structured nance (Insurance Linked Securities)

• Securitization • Earnings and / or balance sheet protection

• Weather Derivatives • Increase nancial leverage & exibility

• ILW Covers • Optimise capital structure

• Double Trigger

F E A T U R E S

Why Customized?

Opportunity to leverage correlations Volatility and/or lack of conventional

capacity due to lack of data or historical records

Guaranteed coverage and pricingover a multi-year period


19/24


The current factor based solvencyregime may see a move towardsSolvency II/RBC regime in future asthe Economic Capital frameworkhas already been introduced by theRegulator. Customized Reinsurancehas a greater recognition underSolvency II/RBC.

This creates more opportunities forCustomized Reinsurance.

Risk Transfer from an AccountingPerspective

US GAAP - FAS 113:

Accounting and Reporting forReinsurance Contracts

Transaction quali es only as reinsurance:

if it transfers signi cant insurancerisk (both underwriting and timingrisk);

if it is “reasonably possible” that thereinsurer will suffer a signi cant loss;

where a contract contains elementswhich are divisible (separate risktransfer and nancing elements)these are to be accounted forseparately.

Risk Transfer Tests (“10/10 rule”)Evaluation of the present value of allcash ows under reasonably possible

outcomes9a: there must be signi cant timing and

underwriting risk assumed by thereinsurer

signi cance not clearly de nedunder FAS 113

rule of thumb: min. of 10% of allcash ow scenarios

9b: there must be a reasonablepossibility of a signi cant loss

reasonable possibility not clearlyde ned under FAS 113

rule of thumb: 10% probability ofloss

IFRS 4 – B23 (March 2004) :

Signi cant Insurance Risk

Insurance risk is signi cant if, andonly if, an insured event couldcause an insurer (reinsurer) to paysigni cant additional bene ts in anyscenario, excluding scenarios thatlack commercial substance […].

[…] even if the insured event isextremely unlikely or even if theexpected (i.e. probability-weighted)present value of the contingent cash

ows is a small proportion of theexpected present value of all theremaining contractual cash ows.

No distinction made betweenunderwriting or timing risk.

UK GAAP – ABI SORP - FRAG 35/94:

Transfer of signi cant insurance risk

[…] either or both underwriting ortiming risk;

It is uncertain whether such loss

event will occur, when it will occur, orwhat cost it will have.

[…] reasonable possibility of asigni cant range of outcomes […]in the context of the commercialsubstance of the contract or contractsbeing evaluated as a whole […].

Accounting Implications on Reinsurance

Principally, a guaranteed pay back in a contract or series of contractsrequire the set up of a liability(respectively an asset) under US-GAAP and IFRS.

Providing reinsurance may triggerconsolidation under US-GAAPFIN 46R, even without any true“ownership” components.

In some cases compliance is a biggerissue than accounting: motivation for

and/or substance of a contract iskey.

Conclusion

Customized Reinsurance is not new inconcept/technique – being used for morethan 40 years. Customized Reinsuranceful ls the same business purpose astraditional reinsurance; both are intendedto spread risk. Long term stability andaddressing Counter party credit riskis more important today as Security

selection remains paramount. Carefulselection of traditional and customizedsolutions can provide optimal balancesheet protection and streamline costs.

F E A T U R E S


20/24


1 Japanese children clean theirschools every day for a quarter ofan hour with teachers, which... ledto the emergence of a Japanesegeneration who is modest andkeen on cleanliness.

2 Any Japanese citizen who has a dog

must carry bag and special bagsto pick up dog droppings. Hygieneand their eagerness to addresscleanliness is part of Japaneseethics.

3 Hygiene worker in Japan iscalled “health engineer” and can

THEBEAUTIFUL JAPAN WHY

CAN’T WE BELIKE THEM?

command salary of USD 5000 to8000 per month, and a cleaner issubjected to written and oral tests!!

4 Japan does not have any naturalresources, and they are exposed tohundreds of earthquakes a year butdo not prevent her from becomingthe second largest economy in theworld? -

5 Hiroshima returned to what it waseconomically vibrant before thefall of the atomic bomb in just tenyears?

6 Japan prevents the use of mobile intrains, restaurants and indoor

7 Japan students from the rst tosixth primary year must learn ethicsin dealing with people -

8 Japanese even though one of therichest people in the world but they

do not have servants. The parentsare responsible for the house andchildren -

9 There is no examination from

the rst to the third primary level;because the goal of education isto instill concepts and characterbuilding, not just examination andindoctrination. -

10 If you go to a buffet restaurant inJapan you will notice people onlyeat as much as they need withoutany waste. No wasteful food.

11 The rate of delayed trains in Japanis about 7 seconds per year!! They

appreciate the value of time, verypunctual to minutes and seconds

12 Children in schools brush theirteeth (sterile) and clean theirteeth after a meal at school; Theymaintain their health from an earlyage -

13 Students take half an hour tonish their meals to ensure right

digestion When asked about thisconcern, they said: These students

are the future of Japan

J A P A N

B E A U T I F U L


21/24


C ountry Overview -Greetings from Indonesia!Considering the latest developments,it is an apt time to be in Indonesia asthe country remains one of the mostexciting markets for life insurance inglobal terms. Indonesia is one of fewlife markets in the world that is bothrapidly growing and quite big in absoluteterms. Premiums have been growing at arobust pace of ~ 25% per annum as thegrowing middle class increasingly takesadvantage of the offerings of the lifeinsurers. This growth has been sustaineddespite the fact that there has not been avoluminous increase in the life insurance

penetration which as per market reportsstands somewhere between 10% - 20%.The life sector in Indonesia is dominatedby subsidiaries of regional and globalmultinationals that have access to globalcapital markets and best practices interms of management. Based on marketestimates, most of the life insurancecompanies in Indonesia have reportedstrong, pro table expansion of theirbusinesses and this grown can bemainly attributable to at least one of thefollowing factors:• Higher agency productivity;

• Signi cant expansion in agencyforces;

• Forging of new bancassurancerelationships with major bankinggroups;

• New product offeringsAlthough the country continues to remainon a strong growth trajectory, some ofthe key challenges which are being facedare as follows• Indonesia’s overall business

environment is still developingand catching up with the moredeveloped economies in the regionalthough this has not hindered thetremendous pace of development ofthe life segment

• Aligning the regulatory frameworkto be consistent with the prevalentglobal best practices and industry’spreparedness to adapt to thechanges

Regulatory Overview -

New RegulatorThe Insurance Industry in Indonesia isregulated by Otoritas Jasa Keuangan

by Pranshu Maheshwari & Anshuman Anand

COUNTRY REPORT : INDONESIA

[email protected]

Pranshu Maheshwari FIA, FIAI iscurrently working as AVP ProductPricing with PT AIA Financial Jakartaand is also Member, IAI AdvisoryGroup on Examination

About the Authors

[email protected]

Anshuman Anand AIAI is currentlyworking with PT AIA Financial Jakartaas AVP Corporate Actuarial and iscurrently heading the valuation team.

(“OJK”) which works under Ministryof Finance (“MOF”). OJK is the newlyformed Financial Services Author-ity which serves to regulate and su-pervise activities in the nancial sectorincluding: banking, nancial markets, in -surance and re-insurance, pension fundsand other nancial institutions. The func -tions and authorities of the MOF thatwere earlier performed by Bapepam-LK(erstwhile Financial Services Regulator)have been transferred to OJK since 31December 2012.

Recent Regulatory ChangesI. Gross Premium Valuation The reserving methodology has

been changed from Net PremiumValuation (“NPV”) to Gross PremiumValuation (“GPV”) effective 1 January2013. This is applicable for allproducts except Shariah. For Shariahproducts, the effective date of GPVimplementation has been proposedas 1 Jan 2014. Some key features ofthe GPV regulation are:• Provision for Adverse Deviation

(“PAD”) with 75% and 95%Con dence Level for reserving and

risk based capital respectively• Negative reserves zeroised at

product level• Interest rate based on government

bond yield• Transition factors for 2013, 2014

and 2015.

II. New Risk Based Capital (calledMMBR in Indonesia)

In line with the GPV regulations,the regulations on new RiskBased Capital (“RBC”) have been

implemented and are effectivefrom 1 January 2013. Prior to theissuance of these new regulations,RBC was in place however somechanges have been made as follows:

• Existing risk charge basis modi ed

• New risk charges introduced, forexample, to capture OperationalRisk

• Transitional factors allowed for2013, 2014 and 2015 with theintention to gradually scale up therisk charge impact

III. IFRS Indonesia adopted IFRS Phase I

from 1 January 2012. However, in

consultation with the accountingboard, the insurance industry hasimplemented this change effectivefrom 31 December 2012 in order toalign with the new GPV regulations.

IV. Reinsurance Effective 1 January 2013, there are

some new regulations on reinsurancewhich may affect some of the existingreinsurance arrangements of the lifeinsurers. Some of the key featuresinclude• Minimum retention per life is IDR

100 million for Surplus basis• Minimum retention is 50% of

Gross Premium for Quota Sharebasis

In addition to above, there are somedraft regulations proposed by OJKlike revision of the Law on Insuranceand they are also expected to comeup with a technical note on GPV innear future. We will publish furtherupdates if there have been any

substantial developments relating tothese. Stay tuned!

R E P O R T

C O U N T R Y


22/24


[email protected]

S H I L P A ' S P U Z Z L E

S U D OK Upuzzle No. 10

for the month of April 2013

HOW TO PLAY Fill in the grid so that every horizontal row, every vertical columnand every 3x3 box contains the digits 1-9, without repeatingthe numbers in the same row, column or box.

You can't change the digits already given in the grid.

- Sudoku Puzzle by Vinod Kumar

Solution of

Sudoku Puzzle No.9

published in the

Month of March 2013

HARD SOLUTION

2 3 8 9 6 1 4 5 7

1 4 7 5 3 2 8 9 6

9 6 5 8 4 7 3 1 2

6 5 2 3 7 9 1 8 4

7 8 4 1 5 6 9 2 3

3 1 9 4 2 8 7 6 5

8 2 3 6 9 4 5 7 1

5 7 1 2 8 3 6 4 9

4 9 6 7 1 5 2 3 8

HARD

9 8

4 2 1

6 3 5

7 5 4

6 4 2

8 6 9

2 7 3

5 1 8

3 1 4

A BALASUBRAMANIAN

M U UPADHYAYA

SAMBASIVA I RAO

Many Happy Returns of the daythe Actuary India wishes many more years ofhealthy life to the following fellow members

whose Birthday fall in April 2013

(Birthday greetings to fellow members who haveattained 60 years of age)

Puzzle No 189:What lls more of the available space – asquare peg in a round hole or a round pegin a square hole?

Puzzle No 190:Let x and y be two whole numbers, x>=y.When (x2 + y2) is divided by (x +y), let thequotient be q and the remainder be r. Ifq2 + r = 6146, nd all possible values forx and y.Solutions to puzzles:

Puzzle No 183:One, one, nine, three and nine

Puzzle No 184:93,239 or 95,759

Puzzle No 185:The sequence is formed by the integersthat do not contain the letter “e”. The nexttwo terms are 42 and 44.

Puzzle No 186:The solution of TIM × SOLE = AMOUNT

is 257 × 3806 = 978142. Thus LEAST is06932, MOST is 7832, and LEAST is lessthan MOST. The difference between thetwo is 900, which in letters is ALL.

Correct solutions were received from:

Puzzle No 183:1. Gyanesh Jain2. Graham Lyons

3. V. V. N. K. K. Sarma4. Vaishnavi Purandare5. PS Durga Prasad

Puzzle No 184:1. Gyanesh Jain2. Trupti Apraj3. Shilpi Jain4. Vikas Khurana5. Titiksha Jain6. Aswin Pugalia7. B. Krishnan

8. R. Mythili9. Graham Lyons10. Richie Lahoti

11. Manoj Barbhaya12. Ram Nivas Meena13. C. R. N. Krishna Sai14. Puja Rege15. Prathamesh Ghanekar16. Vaishnavi Purandare17. PS Durga Prasad

Puzzle No 185:1. Puja Rege2. Charumathy Balan3. Vaishnavi Purandare

Puzzle No 186:1. Vaishnavi Purandare


23/24


24/24

Postal Registration No. - MH/MR/South/297/2012-14

Posted between 17 th - 23 rd of every monthRNI NO. - MAHENG/2009/28427

Published on 16 th of every month

actuary india april 2013

Documents