INTERNATIONAL SECTION International

[Pages:27]ISSUE 77 ? MAY 2019

INTERNATIONAL SECTION

International News

Introduction & Section News

3 Editor's Note By Milanthi Sarukkali

4 Chairperson's Corner By Arpita Das

Asia Pacific

6 Risk-Based Capital Development in India By Steven Chen and David Fishbaum

11 A Note From an Enthusiastic Mentee By Devindi Samaranayake

North America

12 Gen X Women: The Time is Now to Embrace Health Savings Accounts By Megan Gorman

Middle East & Africa

15 Life Progress in the Middle East By Mazen Abou Chakra and Elie Daaboul

23 Training on "Data Science for Life & Health Insurance," CREAD, December 23?25, 2018, in Collaboration With AWB? By Farid Flici

Europe

24 Reducing Vulnerability Through Insurance By Carlos Arocha

Risk-Based Capital Development in India

By Steven Chen and David Fishbaum

Page 6

International News

2019 SECTION LEADERSHIP

Officers

Arpita Das, FSA, FSAI, Chairperson Susan Mateja, FSA, MAAA, Vice Chairperson Steven Chen, FSA, MAAA, Secretary Manyu Wong, FSA, CERA, Treasurer

Issue 77 ? May 2019

Published by the International Section Council of the Society of Actuaries.

This newsletter is free to section members. Current issues are available

on the SOA website ().

To join the section, SOA members and non-members can locate a

membership form on the International Section webpage at .sections/international/.

This publication is provided for informational and educational purposes only. Neither the Society of Actuaries nor the

respective authors' employers make any endorsement, representation or guarantee with regard to any content, and

disclaim any liability in connection with the use or misuse of any information

provided herein. This publication should not be construed as professional or

financial advice. Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries

or the respective authors' employers.

Copyright ? 2019 Society of Actuaries. All rights reserved.

Publication Schedule

Publication Month: September 2019 Articles Due: June 5, 2019

The digital edition of this newsletter can be found at

/sections/international/

Council Members

Yanjie Feng, FSA, MAAA Heather Ingram, FSA, ACIA Esteban Paez, FSA, MAAA Ken Seng Tan, ASA, CERA James Xu, FSA, FCIA

Newsletter Editors

Milanthi Sarukkali, FSA, Ph.D., Editor in Chief milanthi@

Carlos Arocha, FSA, Deputy Editor in Chief ca@arochaandassociates.ch

Wan-Yi Huang, Canada wan-yi.huang@cra-arc.gc.ca

Carl Hansen, Europe chansen@

Gordon Garfield, Asia Pacific ggarfield@

Jessica Chen, Latin America and USA jqcinsf@

Boaz Yam, Middle East and Africa boaz@ogen.co.il

Jing Fritz, USA Jing.fritz@

Program Committee Coordinator

Heather Ingram, FSA, ACIA 2019 SOA Annual Meeting & Exhibit Coordinator

SOA Staff

Ben Marshall, FSA, MAAA, FCIA, CERA, Staff Partner bmarshall@

Jane Lesch, Section Specialist jlesch@

Karen Williams, International Project Manager kwilliams@

Julia Anderson Bauer, Publications Manager jandersonbauer@

Erin Pierce, Senior Graphic Designer epierce@

MAY 2019 INTERNATIONAL NEWS | 2

Editor's Note

By Milanthi Sarukkali

Welcome to the May issue of International News. We are excited to present to our readers several high-quality articles with diverse perspectives. This issue brings together articles from some of our regular contributors as well as a few new authors.

The International Section successfully concluded the Country Feature Article competition for 2019. We received several outstanding entries discussing a wide array of topics across different regions. Congratulations to Steven Chen and David Fishbaum, who authored the winning article, "Risk-based Capital Development in India," featured in this issue of the newsletter. I would like to thank all the authors who sent in their articles for the competition. We hope to publish more of these articles in subsequent issues of the newsletter.

The lineup of this issue includes a timely article on health savings accounts (HSA) with a focus on Gen X women. Another interesting article included here is a discussion on how the life insurance market has progressed in the MENA region. An enthusiastic mentee of the Actuaries Without Borders? Global Mentorship Program has sent in a note describing her experience with the program and how her mentor has helped her progress in her career. We also have a view of the role of an actuary in microinsurance and a recap of a workshop in data science held in Algeria.

Now I would like to take a moment to reflect on my experience on the editorial board of the International News newsletter. I joined the editorial board in 2015 as a volunteer editor covering the Asia Outside Greater China region. I moved to the role of deputy editor in chief in 2018 and to the lead editor role this year. Being on the editorial board has given me the pleasure of

working with several actuaries across different regions, sourcing and editing articles on various topics of relevance. It has been a great networking opportunity and has also exposed me to topics that I would otherwise not have come across or researched. Currently, we are looking to expand our editorial board to cover even more regions. I encourage any members who are interested in joining the International News editorial board to reach out to me or Carlos Arocha to learn more. It has been a truly rewarding experience for me personally, and I am confident it will be so for you as well.

Additionally, I encourage our readers to contact me and Carlos with any ideas and comments, as well as to consider contributing content to the newsletter.

Milanthi Sarukkali, FSA, Ph.D., is the founder and principal consultant at SPARK Actuarial & Risk Consultants. She is based in Colombo, Sri Lanka, and can be reached at milanthi@.

MAY 2019 INTERNATIONAL NEWS | 3

Chairperson's Corner

By Arpita Das

a LinkedIn page and a revamp of our website. In the real world, we are reviewing opportunities at actuarial events around the globe that attract section members and we hope to leverage them to build connections. In 2019, events include the Global Conference of Actuaries Mumbai, which was held in March, the Society of Actuaries (SOA) Asia-Pacific Annual Symposium in Bangkok and the SOA Annual Meeting & Exhibition in Toronto, which are scheduled for June and October, respectively.

Welcome to International News. This issue marks the halfway point of the year and perhaps the right point at which to reflect on what we've accomplished here at the International Section so far.

First and foremost, I am proud to say that this year has kicked off with a laser-focused mission: connection and outreach. This two-pillared mission puts our members, their needs and their interests at the center of our activities. This mission was articulated as a result of our first strategy call and has been the guiding light for our activities since then. The year has also been characterized by the active engagement and enthusiasm of our council members and friends. I am grateful for the team we have in place and excited for the initiatives that are underway.

Connection. Our first pillar has triggered a number of initiatives both digitally and in the real world. Digitally, we are looking to facilitate member connections through multiple interactive platforms. Plans are underway for an e-bulletin,

Outreach. Our second pillar refers to conducting research and supporting actuarial education around the world. Research topics under consideration include a collaboration on health care funding around the world and a global retirement research project. In terms of supporting actuarial education, we plan to collaborate with Actuaries Without Borders? on its volunteer projects and Global Mentorship Program this year. We also plan to liaise with the Actuary of the Future Section of the SOA.

This mission is ultimately meant to focus our efforts and serve you, our section members. If you have any ideas, feedback or thoughts, please reach out to me or any of our council members. We want to hear from you.

Arpita Das, FSA, FSAI, is the life and disability senior actuary at Allianz Partners. She is based in Dublin, Ireland, and can be reached at arpita.das@.

MAY 2019 INTERNATIONAL NEWS | 4

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Risk-Based Capital Development in India

By Steven Chen and David Fishbaum

India has one of the largest markets in the world, with significant demographic advantages. The insurance sector has continued to grow in scale over the years. Total premium income has grown at a compound annual rate of 11 percent, with remarkable growth and development in the private sector (Figure 1). Life insurance accounts for about 75 percent of the total premium, reflecting the role played by life insurance in savings and investment markets. Growth rates in nonlife insurance have been consistently higher than those in life insurance. However, the insurance penetration rates remain low, especially in the nonlife market.

One unique characteristic of the Indian insurance market is that although private insurers are large in number, more than 65 percent of the market share, by premium income, comes from public sector insurers. Specifically, one of the state-owned insurers, Life Insurance Corporation of India (LIC), accounts for 55 percent of the total insurance premium of the entire Indian insurance market. Most private sector companies entered the market after 2001, when the market was reformed and opened.

In recent years, most of the new entrants have been nonlife insurance companies. The limit on foreign investment in primary insurers has been raised from 26 percent to 49 percent.

OVERVIEW OF RISK-BASED CAPITAL DEVELOPMENT IN INDIA

The current capital regime in India is essentially a "Solvency I" approach (Figure 2). Liabilities are also called mathematical reserves using a gross premium valuation approach. Actuarial assumptions are based on the expected experience and include a margin for adverse deviations. Valuation interest rates are based on prudent assessment of the yields from existing assets and future investments.

Required capital is a factor-based set of solvency requirements that move in line with business volume that is insensitive to risk. The required solvency margin equals a first factor times the mathematical reserves plus a second factor times the sum at risk. The two factors vary by business segments, products and guarantees, ranging between 0.8 percent and 3 percent for the reserve factor and between 0.1 percent and 0.3 percent for the sum at risk factor. There is also some allowance for reinsurance credits. The control level of solvency is set at 150 percent of the required solvency margin.

The current approach to capital requirement makes India an outlier in Asia and internationally. Most countries in Asia have adopted a more risk-based approach to capital requirement. For example, countries such as China and Singapore have recently updated to a risk-based solvency regime. Hong Kong is currently developing a risk-based capital (RBC) framework with the second Quantitative Impact Study (QIS) completed recently.

Figure 1 Total Written Premium in Indian Insurance Market (INR crore*)

700,000 600,000 500,000 400,000 300,000 200,000 100,000

0

2012?2013

2013?2014

2014 ?2015

2015?2016

2016?2017

Life (Public) Life (Private) Nonlife (Public) Nonlife (Private)

Source: Insurance Regulatory and Development Authority of India (IRDAI) annual reports. * A crore or koti denotes 10 million in the Indian numbering system.

2017?2018

Required solvency margin (100%)

MAY 2019 INTERNATIONAL NEWS | 6 Control level of solvency (150%)

100,000

0

2012?2013

2013?2014

Risk-Based Capital Development in India

Life (Public)

2014 ?2015

2015?2016

2016?2017

Life (Private) Nonlife (Public) Nonlife (Private)

2017?2018

Figure 2 Illustration of the Current Solvency Regime in India

Mathematical Reserve

Required solvency margin Control level of solvency (100%) (150%)

Required Capital

Available Excess Capital

Pros

? Simple to calculate, administer, validate and communicate ? Withstood the test of time

Cons

? Capital levels not necessarily aligned with actual risks ? Does not consider all risks (e.g., counterparty risk) ? Little incentive for better risk management ? Counterintuitive; companies with higher reserves are

required to hold more capital

Source: Report of IRDAI Committee on Risk-based Capital (RBC) Approach and Market Consistent Valuation of Liability (MCVL) of Indian Insurance Industry, Part II, July 2017; Oliver Wyman analysis.

In the recent assessment of Indian insurance sector regulation and supervision by the International Monetary Fund Financial Sector Assessment Program, onTeecohfnitchael Pkreoyvirsieocnosmmendations is for the Indian insurance regulator to "formulate a strategy, plan, and tBimesettEasbtilme afoteromf Loiadbeirlintyiz(a"tBiEoLn")of the solvency fRraismk Mewaorgrikn as soon as possible."

While more countries are moving to a more risk-based capital framework, the Indian insurance industry is not all aligned with the futPurroesdirection. Based on an industry survey,1 some companies prefer the current factor-based approach because it is easy to calculate and administer. Further, it has been time tested and is wor?kiMngodeuflfaicr iienndtelsyigfnoranadllcionnssuidreerrins.g all relevant risks

? More risk sensitive to reflect true financial positions

Howe?vePrr,otmhoistecsubrertetenrtriaspkpmraonaacghemheanstspormacteicseisgnificant disadvantages.?FiCrosnt,sicstaepnittawlitlhevinetlesrnaraetionnoatl innseucreasnscaericlaypaitlailgsntaenddwaridtsh actual risk. Second, it does not consider all the risks. For example, counterparty default risk is not included. Third, there are few incentives for insurance companies to promote better risk management, as limited credits are available for risk mitigation actions. And last, the result can be counterintuitive because companies with higher reserves would be required to hold more capital.

In 2017, as part of the initiative to comprehensively update the solvency regime, the Indian regulator issued a report on RBC approach and market consistent valuation of liabilities (MCVL) of Indian insurance business. This report made some

recommendations, at a macro level, about the potential framework for the new risk-based capital (Figure 3). Specifically, the report recommended thatInitnersvuernatniocnelalidadbeirliTtiBeDs would be valued on a consistent, economic value basis. The best esAtvimailaatbeleof liabilitySoclovrernecsypCoanpditsaltRoetqhueirepmroebnatbility-weighted aveEraxcgeessof future cash flows. An explicit risk margin is to capture thCeapuintaclertainty of liability cash flows related to non-hedgeable risks using a cost-of-capital approach. The liability valuation would be consistent with IFRS 17, the new insurance accounting standard, in princCiopnles.

The? ized?

saopIMnlpsvoureroffienaccccoiyehmnc,tpailipnincisdattuateesladtrdreytoqoaucnfadiarlcnceuomlimanetpetneaatnrnnwydadoalaudtmlamdoinbdiesetlberaapsepdrooancha.sAtalnl draisrkds-,

irnisckl?,uwdaSioinngudgnliidficmcrbpaelendetmictroeersvniosetukartre,icodiennacsoutnrasathnraicgienhtrsicsfooknr, tfmeidsateirnnkgceet

risk and operational level, likely a value-

at-r?iskUanpknporwoancihmpaatc9ts9t.o5 tpheerocveenrta.llAingdgursetrgyaatniodn would also reflect the deipndeinviddeunacl cieosmwpaitnhyin risks and between risks. And the min-

imum capital target would be determined based on the results

of the QIS. The basic solvency capital requirement, aggregating

all risk components, would likely use a combination of factor-

based and shock-based approaches. The parameters would be

calibrated in the Indian context and should be refined during

the QIS process.

There are several advantages for moving to a risk-based capital regime. To start, it is more risk sensitive and more consistent with international insurance capital standards.

Year 1

Year 2

Year 3

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Phase 1 ? Investigation phase

Initial RBC framework development Industry consultation and gap assessment

MAY 2019 INTERNATIONAL NEWS | 7

? Simple to calculate, administer, validate and communicate ? Withstood the test of time

Risk-Based Capital Development in India

? Capital levels not necessarily aligned with actual risks ? Does not consider all risks (e.g., counterparty risk) ? Little incentive for better risk management ? Counterintuitive; companies with higher reserves are

required to hold more capital

Figure 3 Illustration of the Proposed Solvency Regime in India

Technical Provisions

Best Estimate of Liability ("BEL")

Risk Margin

Intervention ladder TBD

Solvency Capital Requirement

Available Excess Capital

Pros

? Modular in design and considering all relevant risks ? More risk sensitive to reflect true financial positions ? Promotes better risk management practices ? Consistent with international insurance capital standards

Cons

? More complicated to calculate and administer ? Insufficient industry and company data ? Significant resource constraints for testing

and implementation ? Unknown impacts to the overall industry and

individual company

Source: Report of IRDAI Committee on Risk-based Capital (RBC) Approach and Market Consistent Valuation of Liability (MCVL) of Indian Insurance Industry, Part II, July 2017; Oliver Wyman analysis.

Nevertheless, the Indian industry raised several concerns about The regulator also proposed a three-year time frame for imple-

the new regime. In particular, insufficient industry and company menting the new RBC regime. It should be completed in three

data will make required capital calibration difficult. In addition, phases (Figure 4).

implementing the new capital framework requires significant

resources and most companies have only enough actuaries for The first phase is called the investigation phase. This phase

business-as-usual activities. And last, there is the unknown risk involves an initial RBC framework development, which would

about how the new regulation will shape the industry.

Yeare1quire a review ofYreeacrom2 mendations fromYesaevre3ral key com-

Phase 1 ? Investigation phase

Q1 Q2 mQi3ttee Qre4portQs.1A beQn2chmQa3rkingQ4exercQis1e toQg2lobaQl 3and Qre4gional risk-based capital is also needed. The second task is to launch an

industry consultation to get feedback and to assess gaps between

Initial RBC framework development

the current regime and the future RBC regime.

Industry consultation and gap assessment

Phase 2 ? Agreement phase

QIS 1 QIS 2 QIS 3 Additional QIS (optional)

Phase 3 ? Finalization phase

The second phase is called the agreement phase. The agreement phase would have three QIS. Technical specifications and templates would be provided to all participants. The first QIS would likely take more time given it is the first attempt at sizing the industry. Subsequent QIS would allow the regulator to update and refine the design and parameters based on the QIS results and feedback from the industry.

Methodology and report finalization Regulatory planning and implementation

The last phase is called the finalization phase. In this phase, the RBC methodology and calibration would be concluded. The regulator also needs to prepare the industry for transition. Certain regulation changes would be required. In addition, ongoing stakeholder management and communication with regulated entities would be required to ensure a smooth implementation process.

MAY 2019 INTERNATIONAL NEWS | 8

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