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In a first, Irdai has terminated the membership of an actuary of state-owned non-life insurer National Insurance Company (NIC) for alleged wrongdoings. The penal action came after the regulator found wrongdoings by actuary Manalur Sandilya in preparing the balance sheet of NIC for the 2015-16 fiscal. While preparing the balance sheet, the actuary had not calculated the amount of provisioning against the claims correctly, according to Irdai charges. “Actual provisioning for motor third party commercial vehicle for the year was at 130 per cent, whereas the actuary had provided 46.58 per cent only. The actuary had submitted before Irdai that the most likely provisioning should have been Rs 7,293 crore, whereas he had certified Rs 3,030 crore, thereby causing a shortfall of Rs 4,263 crore in the company’s balance sheet,” an Irdai statement said.
The under-reserving by the actuary has resulted in the shortfall of Rs 4,263 crore in the NIC’s reserve for future provisioning — called IBNR or incurred but not reported in insurance parlance — in the financial statements of the insurer as on March 31, 2016. According to Irdai, the actuary cannot unilaterally decide to understate the IBNR figures in the name of ‘policyholders interest’ without consulting the board of the insurer and the authority. If the actuary had given the complete and correct picture on IBNR reserves, it would have enabled the board of the insurer to take timely and appropriate corrective actions in consultation with the authority for saving the interest of policyholders, it said.
“Shandilya, one of the senior most actuaries in India, was our panel actuary as on March 31, 2016, as we did not have a full-time appointed actuary at that point of time,” Sanath Kumar, chairman and managing director, National Insurance Company, told PTI. On the solvency crisis the company has been facing, he said that interests of policy holders were never at any risk at any point of time, as NIC has a large networth and off- balance sheet assets as well as real estate. According to Kumar, the solvency margin is calculated on book value, while if calculated on fair value more than it would be close to 3:1.
“National Insurance is more than sufficiently covered against all liabilities as evidenced by our asset liability management framework. We had duly factored all liabilities while taking a call to strengthen our reserves over a period of time with care that obligation to policy holder’s was never compromised at any cost,” Kumar said. As a matter of fact, the Kolkata-based insurer is today struggling to do business with a lower solvency of 1.3 against the regulatory requirement of 1.5. “Though this may perhaps be the first time that a regulatory authority has taken action against an actuary for omission and commission in the country, there have been such instances in other markets,” K K Srinivasan, former member, Irdai said.
The world over inadequate reserves for claims are a major reason for insurance industry’s insolvencies, he said. An actuary, Srinivasan said, can certainly be held responsible for not ensuring solvency of an insurer at all times. The action taken by Irdai will have a salutary effect of the functioning of actuaries.