Dec 2019

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Sri Lanka: Actuaries need to take into account investment volatility

Source: Asia Insurance Review | Dec 2019

An important topic which the insurance industry in Sri Lanka needs to think about is that products which were priced a long time ago are still priced in the in the net present value regime, Willis Towers Watson Actuarial Advisory partner Kunj Behari Maheshwari has warned.
Speaking at a recent actuarial conference, he noted the high volatility and relatively high rates in the government securities market, according to a report in Daily Lanka. Given the change in accounting standards and the age of contracts, there might be some adjustments to be made given a decline in interest rates.
He said, “The investment outlook tended to be lower than the investment outlook that we are pricing in. In the current regime, the level of the risk free rates are anywhere between 10 and 13%. It is volatile. It can move between a 100-200 basis points. If we are timing our liabilities effectively at the discount rate, what is the type of investment outlook that has been priced in there?”
He added that the assets in the business exist to cope with an interest rate shock. He said, “But what does that mean to the shareholders’ return? If that 12% was to go down to 9% or 8%, you will still be solvent and the regulator doesn’t mind; but the shareholder will be very angry. That is the line of the sight within the regime that we tend to forget.”
He said, “We are starting to take on a lot of investment risk. An actuary should be pricing that risk as well.
“If the shareholder wanted to invest into the equity market or high yielding bonds they could invest it themselves.” A 
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