Institute of Actuaries of India

Guidance Note(GN 8)

(Independent Actuary (IA) on With Profits Committee (WPC))

Guidance Note(GN 8) / Suggestion for alternative wording / Rationale or Justification for change / Comments
Independent Actuary (IA) on With Profits Committee (WPC)
Classification / Recommended practice
Legislation or Authority / 1. Insurance Act, 1938
2. IRDA(Non Linked Insurance Products) Regulations, 2013,hereinafter referred to as “IRDA Regulations”
Author /

Council of the Institute of Actuaries of India (IAI)

Application /

A Fellow or Affiliate member of IAI (referred to herein after as “Actuary”) who serves in the capacity of an Independent Actuary (IA) as per the IRDA Regulations.

Status / Under due process
Version /

1.00

Effective /

With immediate effect

1  Introduction

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1.1  As provided under Paragraph 45 of the IRDA Regulations referred to above, life insurance companies with participating (also referred to as ‘with-profits’) business are required to set up a WPC. The WPC is required to approve the detailed working of asset share calculations.

1.2  The WPC is required to consist of an independent director of the Board, the CEO of the life insurance company, the Appointed Actuary (AA) of the life insurance company and an Independent Actuary.

1.3  The IRDA Regulations require the report of the WPC to be appended to the Actuarial Report and Abstract (ARA) that are filed by the AA with the IRDA.

1.4  This GN provides guidance to Actuaries who work on the WPC in the capacity of IA as per the IRDA Regulations.

2  Considerations affecting the appointment of an Independent Actuary

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Relevant experience

2.1  Before accepting the role to act as an IA, the Actuary should consider if he / she has the relevant experience to act in this capacity.

2.2  In certain circumstances, the IA may seek external advice from other actuaries and other professionals (e.g. lawyers, accountants etc.). However, this must be done with the concurrence of the company and the right to seek such advice should be agreed at the stage of appointment and before taking the advice.

Conflict of interest

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2.3  The Actuary should be mindful of any conflict of interest in his/her accepting the assignment as an IA required under the IRDA Regulations for this purpose.

2.4  The Actuary should demonstrate how any potential conflict has been addressed by him / her, at the time of accepting the assignment.

2.5  If the Actuary sees a potential conflict in working in the capacity of an IA, he / she should not accept the assignment.

Independence

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2.6  For an Actuary in a particular situation to describe the advice offered as ‘independent’, the Actuary must be free, and be seen to be free, of any influence which might affect or has the potential of affecting the advice or of limiting the Actuary’s scope of advice.

2.7  The IA should be independent of and external to the life insurance company. Given below are some situations where the IA will not be considered to be independent of and external to the life insurance company:

a.  If the Actuary is an employee of the life insurance company or any of its group companies;

b.  If the Actuary has served as an Appointed Actuary of the life insurance company in the past one year;

c.  If the Actuary has worked in the life insurance company over the past one year in any other senior capacity (such as the CEO, CFO etc.) which may directly or indirectly influence the management of participating business in that company.

d.  If the Actuary is serving as peer reviewer of the Company.

Terms of reference

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2.8  The Actuary should ensure that there are clearly documented terms of reference for him/her to be the IA on the WPC, before he / she accepts the assignment to act as an IA. It should be noted, however, that the IA’s work will always be bound by the terms of reference of the WPC.

2.9  Before accepting the assignment to act as an IA, the Actuary should consider the terms of reference set for the WPC and consider if it would be possible for him/her to provide support as an IA within the set terms of reference.

2.10  Within the terms of reference of the WPC, this GN is permissive; it does not mandate what the IA should do.The minimum scope is as stated in IRDA (Non Linked Insurance Products) Regulations, 2013 updated from time to time. The scope may be extended beyond the minimum requirements as agreed by WPC to include matters such as the following:

a.  Attending the regular meetings of the WPC and participating in the discussions.

b.  Reviewing / commenting on the recommended bonus rates in the light of emerging experience.

c.  Reviewing the overall risk management framework adopted by the Company in managing the participating fund.

d.  Contributing to / drafting the report of the WPC that is required to be appended to the AA’s ARA submitted to the IRDA.

e.  that AA has complied with Guidance Note 6 and that the methodology adopted is in compliance with GN6.:
·  That the Company has calculated assets shares at policy level, adopting an appropriate methodology.

·  That the various aspects of management of participating fund are documented by the insurer. This may cover matter stated below so as to ensure that the policy holder is treated fairly at all times:

- Investment policy of the participating fund
- Definition of asset shares and how they are determined
- Approach adopted in setting bonus rates
- Smoothing policy adopted
- Treatment and management of capital
- Allocation of common expenses to the participating business

a.  Making recommendations (if appropriate) in enhancing the governance standards adopted by the Company in managing the participating funds.

2.11  It may be noted that currently, GN6 is classified as a ‘recommended practice’. However, while making his / her recommendations, the IA may need to consider that the usage of asset shares as per IRDA Regulations is mandatory.

3  Working with other members of the WPC

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3.1  The IA must be conscious that he / she would be providing an independent actuarial voice in the working of the WPC. To this extent, the IA should provide his / her independent opinion in the discussions of the WPC.

3.2  The IA must consider the requirements as mentioned in other actuarial guidance notes (such as Section C of APS 1) whilst expressing his / her opinion.

3.3  There may be situations where the IA may have differing views / opinions as compared to the views / opinions held by other members of the WPC. In such situations, the IA should try and resolve the difference of views / opinions before the WPC’s report is finalised. However, if material points remain unresolved, the IA should ensure that the minutes of the meetings of the WPC and consequently the report of the WPC that is submitted to the IRDA clearly identifies his / her voice of dissent.

3.4  The IA should particularly draw reference to APS1 ‘Guidance to Independent Actuaries’ in these matters.The IA may have disagreements with the AA on certain matters. The IA should be mindful that there is room for difference of opinion with regard to actuarial advice and judgement, and he / she should always take care to respect the status of the Appointed Actuary. This should not, though, stop him / her from making properly reasoned comments on the work of the AA, if need be

4  Written report

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4.1  The report of the WPC is required to be appended to the ARA to be submitted to the IRDA. This is a report of the WPC and not that of the IA.

4.2  If the IA deems fit, he / she may provide a separate report / communication to the company, although this may not be necessary unless the IA has strong views against certain aspects adopted by the insurer in the management of the with-profits business.