Operational and Actuarial Aspects of Takaful Emerging Issues in Takaful.
Operational and Actuarial Aspects of Takaful Actuarial Concepts and Actuarial Control Cycle.
-
Upload
sydney-wilkerson -
Category
Documents
-
view
259 -
download
8
Transcript of Operational and Actuarial Aspects of Takaful Actuarial Concepts and Actuarial Control Cycle.
Operational and Actuarial Aspects of TakafulActuarial Concepts and Actuarial
Control Cycle
Sub TopicsRole of the Actuary The Business EnvironmentBasic Actuarial ConceptsComponents of Actuarial Control CyclePricing Experience MonitoringLiability Provision
BNM Guidelines – JPIT 10Role of the Appointed ActuaryAA must be a FSA, FIA,FAIA or FAA under
Section 2 of TA 1984Appointment or termination only with BNM’s
approval
BNM Guidelines – JPIT 10Section 3 -To interpret participants
reasonable expectationsSection 4 - Valuation of LiabilitiesSection 4.2 - Ensure data accuracy Section 4.3 -Testing of assumptionsSection 4.7- Test profitability of BusinessSection 4.12 - Recommends Distribution of
Surplus
BNM Guidelines – JPIT 10Section 4.13 - Preparing an FCRSection 4.14 - Comments on Investment
PolicySection 4.15 - Comments on Re Takaful
PolicySection 4.16 - Additional Solvency Test
Role of the Actuary - Monitoring and Reporting FCR Contents:-• Comments on Co Strategic Plan• Performance of Business vis a vis budget• Design of Takaful Model and Adherence• Comments on Profit Test assumptions• Adequacy of Reserves• Comments on Investment Strategy and
Performance• Comments on Retakaful• Comments on Surplus Sharing provisions• Overall Risk Management capabilities• Shariah Issues
Role of the Actuary - Monitoring and ReportingDevelopment of KPIs and KRIs (from FCR)-
relates more to underwriting risks• Expense overruns• Annual Expense Inflation• Expense Analysis• Loss Ratios• Accuracy of Assumptions used• Investment Performance
Management
Employees
Agents
Shareholders
Participants
Regulators
TakafulScheme
The Balancing Act
Role and Qualifications of The Actuary in other CountriesBaharin; Refer to Central Bank of Bahrain
Rule book sections TA 2.4.3, TA 2.4.4 and TA 2.4.5
Pakistan; Refer to Insurance Ordinance 2000 section 26. Actuary is as prescribed by the authority
Brunei; Same as Malysia and includes FCIA
Role and Qualifications of The Actuary in other CountriesUK; FIAUS; Member of the American Academy of
Actuaries as a minimum qualificationCanada; Member of the Canadian Institute of
Actuaries
Economic Environment
Legal System
Literacy, Health & Living standards
Taxation Economic growth & other factors
Employment & Income Patterns
Regulations on Takaful
Status of Capital Market
Investment Yields
Competition
Existence of welfare / retirement systems
Demographics
Risk Exposure Risk Contribution
Risk Pool
Covered benefits
Contractual Sums Covered
Ex Gratia Benefits
Risk Fund Expenses:-Claims Handling FeesLoss Adjuster FeesRisk Survey FeesMedical Test CostsHospital ReportsUnderwriting ExpensesRetakaful Expenses
Basic Concepts - Level ContributionThe incidence of many contingencies
increase with ageUnlikely that participants will pay
increasing contributionsHence, level contributions But the sum total of contributions and
investment profit earned thereon accumulated over each point in time is sufficient to match the increasing risk pattern effective at that point in time
Level Takaful Contributions
Risk Fund Savings Fund
Risk Contribution (Tabarru’)
Savings Contribution
Actuarial Control CycleThe actuarial control cycle describes the
essential process by the actuary to assist the operator to manage its takaful funds on a sound financial basis
The actuarial control cycle can be broken down into three major steps namely 1) the pricing step 2) the experience monitoring step and 3) the liability provisioning step.
The actuarial control cycle may also be seen to operate within the pricing and liability provisioning steps as pricing and liability provisioning are themselves continual loop processes.
b) Profit Test
a) Initial Assumptions
c) Model
Analysis of Surplus
d) Monitoring
e) Updating of Assumptions
Appraisal Values
Monitor Experience
Pricing
Set Liability Provisions
Pricing Involve the collection of relevant data, assumptions and
other inputs that will be needed
The assumptions need to be made will include the following:
1. Underlying mortality/morbidity/claims distribution pattern2. Investment rate of return for discounting cash flows3. Rate of management expenses for marketing and
processing4. Withdrawals pattern which affect the recoverability of
initial expenses incurred (marketing, underwriting and issuing new business contracts)
5. The level of taxation, statutory reserving requirements, factors affecting the takaful business
PricingThe actuary need to understand the nature
of the data and statistics obtained and the degree of its applicability to the particular product or business portfolio in question.
The actuary’s task in pricing and re-pricing products will also include consideration of the relative weightage to place on pricing factors obtained from internal experience as well as external sources.
Experience MonitoringWhat to monitor and analyze?
ClaimsExpensesInvestment performances
The experiences must be compared against assumptions used.
Must compare “apple to apple”
Experience Monitoring-ClaimsNeed to set up monitoring capabilitiesLook to determine degree of fluctuations;
random or not?Determine monitoring period
Experience Monitoring - ExpensesSeverity of impact depends on Model used.How to allocate expenses? New or renewal
expenses? By product types?Must set up capabilities to segregate and
track such expenses.
Experience Monitoring - InvestmentHow to determine yield?
i=(2xI)/(A+B-I)
How to implement Mudarabah on returns?
Liability ProvisioningMaking provisions for future claims arising
from the takaful fund.The liability provisions so created will have
an impact on the surplus available in the takaful fund
Estimate the profit generated for the takaful operator.
Increase Retakaful
Experience MonitoringPurpose of Analysis:
Change assumptions?Re price productsWithdraw products