Short Description on Insurance Management, Mutual Funds, Bonus, Underwriting, Actuaries and Insurance Premium

2. Investment Linked Assurance Scheme
 It is a life insurance policy with benefits linked to the
performance of selected investment options, but to the
credit risk of the insurance company. The policyholders
must be aware that the part of the premium is used to pay
for insurance protection, as well as nay fees and charges
imposed by insurance company. The balance of premium
is allocated to the investment criteria chosen by the
policyholder.
 It is also called as Non-Term insurance plan in which
the savings elements is combined with the life cover. In
this a premium is used to provide insurance cover and the
rest is invested in fund which allows money to grow.

3. Types of Investment Plans
1. Traditional Investment Plans: In this the
money is investment in debt funds and Fixed
deposits. The return from this plan is
guaranteed to the investor/Policyholders.
2. Unit Linked Investment Plans: In this
some part of premium is invested in stock
market. The policyholders are able to invest in
stock market by buying the number of units of
funds as per their premium amount.

4. Benefits of Investment Linked Insurance Plans
 Good Returns
 Tax Benefits
 Financial Protection
 Loan
 Dual Benefits- Benefit of saving and investing in
stock market
 Rider Benefits-Critical Illness, Accidental death,
etc

5. Insurance Management
 Insurance management is the management of the
insurance broker or consultants, insurance service
firms or company which is involved in insurance
sector. The insurance management company provides
the access to insurance products and provide the advice
to the prospect clients. It is the insurer which can work
directly or on behalf of the insurance company being
legitimate under the government rules and regulations.
 It can be either life insurance or Non life or
Reinsurance/Bancassurance

6. Functions of Insurance Companies
 Core Functions
1. Marketing and Distribution
2. Underwriting
3. Claims
 Supporting Functions
1. Risk Control
2. Premium Auditing
3. Actuarial
4. Reinsurance
5. Information Technology.

7. Types of Insurance Companies
 Life Insurance Corporation: Life insurance
corporation is the regulatory body of the life insurance
and its business. It is the government monitored or
appointed corporation which looks only after the life
insurance activities and monitor the fraudulent cases
and many other in the nation.
 General Insurance Corporation: The general
insurance corporation is also the regulatory body which
mainly looks and monitor after the general/Non life
insurance activities and its business. It is the
government regulatory body.

8. Objective of Life Insurance Corporation
 Conduct business with maximum economy
 Investing the funds collected as premium in
various other sectors
 Mobilize the peoples saving
 Spreading life insurance business
 Act as trustee or caretaker of the policy holders

9. Functions of Life Insurance Corporation
 Assist the corporate sector
 Mobilize Savings
 Provide Finance
 Make Investment
 Investment in Small and Medium industries
 Resource support to financial institutions

10. Objective of General Insurance Corporation
 To develop marketing network throughout the country
 Promote the regional development and insurance
availability to the public.
 To administer and implement various schemes of farmer
or poor class
 Provide need based and low cost insurance cover to the
farmers.

11. Mutual Funds
 Mutual funds is a collective investment that pools
money from various investors and invest in stocks,
bonds, short term money market instruments or
other securities. It is managed by the fund
manager who is also known as Portfolio manager.
 The value of a share of mutual fund is known as
Net Assets Value per share(NAV) which is
calculated daily based on the total value of fund
divided by the number of shares currently issued
and outstanding.

12. Types of Mutual Funds
 General Classification
1. Open Ended Scheme
2. Closed Ended Scheme
3. Interval Scheme
4. Load Funds
5. No Load Funds
6. Tax-Exempt Funds
7. Non-Tax Exempt Funds
 Detailed Classification
1. Equity Funds
2. Debt/Income Funds
3. Real Estate Funds
4. Money market/ Liquid Funds
5. Hybrid Funds
6. Commodity Funds

13. Advantages of Mutual Funds
 Transparency-Transparency in investing and portfolio
 Diversification- Investment in no of companies/sectors.
 Research
 Professional Management- Expert/Experienced Professional managers
 Convenience- Saves times and Money-Less paper work
 Stability
 Tax Benefits-Tax exempt Dividend benefits
 Flexibility- Schemes can be transferred from one to another
 Affordability-Affordable in comparison to other investment
 Liquidity- Can be sold easily and can be en-cash at moment

14. Disadvantages of Mutual Funds
 No commitment of minimum return.
 Increase in competition.
 Lack of strong distribution network.
 Investment in unlisted securities by the fund
managers.

15. Net Asset Value(NAV)
 Net Asset Value(NAV) is calculated by dividing the difference
between the value of funds securities and liabilities with the number
of outstanding shares. It is used by investment companies to
measure net assets. The NAV is calculated in Per share Value.
 NAV of mutual funds= (Value of MF- Liabilities)/ No. of Shares
 NAV= (Income + Other Assets - Accrued Expenses - Payables - Other
Liabilities) / No. of Shares

16. Calculation of NAV
 Scheme Name: XYZ
 Scheme Size: $ 50 Crore
 Face Value of Units: $ 10
 Number of Units: 5 Crore Units
 Shares Market Value: $ 75 Crore
 NAV:??
NAV= Market Value/ Units of Share
= $ 75 Crores /5 Crores Units
=$ 15

17. Calculation of NAV
 A mutual fund has total assets of Rs 2800000, Liabilities
of Rs 800000 and 200000 outstanding Shares. What is
NAV??
NAV =(2800000-800000)/200000
=Rs 10
 A mutual fund has Rs 10500000 worth of securities, Rs
2000000 of cash, Rs 500000 of Liabilities. No of
outstanding shares is 1000000. What is NAV??
NAV= (10500000+2000000-500000)/1000000
= Rs 12

18. BONUS
 The additional amount or reward that a person is entitled
to get in excess of base amount or the insurance company
provides to the policy holders is the bonus. It is
accumulated on yearly basis which will be paid to the
policy holder on the maturity of the policy or in case of
death. The rate of bonus addition depends upon the
profit that the insurance company earns.

19. Types of Bonus
 Cash Bonus: It is the bonus that is paid to the
policy holders in terms of cash. In this the bonus
accumulated in a year will be paid at the end of
year. In this opportunity the policy holders is liable
to get the bonus yearly rather than at the maturity.
 Terminal Bonus: It is also called as loyalty
bonus in which the bonus declared by the
companies for policies having run for 15 years or
more is liable. It is a one time bonus declared by
the company.

20. Types of Bonus
 Interim Bonus: In this type of bonus, the bonus
is declared on the valuation date.
 Revisionary Bonus: Revisionary bonus is added
to the benefit of a with profit policy holder
throughout the life of the policy. The benefit is not
guaranteed in advance but once added to the
benefit, it is guaranteed. It is one which will
increase benefits payable in the future. The bonus
that is paid regularly to the policy holders is
revisionary Bonus.

21. UNDERWRITING
 Underwriting is the process of choosing who, what and how the insurance company
decides to insure. It is the process performed by insurance underwriters who is
involved directly in deciding who is to insure and how much will be the
insurance premium. They can also go for who to and who not to insure.
 The underwriting is performed by the underwriter who is the full time/part time
employees of the company. He / She can be either from the government side or hired
by the insurance company.
 The insurance underwriter evaluate the risks and exposure of risk of potential clients,
their economic and financial condition of the clients. They also decides on how much
coverage the clients should receive, how much they should pay for it and provides the
best policy options as per the clients financial and economic status.
 The work of underwriting is to be completed within the 15 days of application or
interest show by the clients. The major person who either accept or decline
the insurance policy is the insurance underwriter.
Proposal Form Filling Process (Decision on either accept
or decline the Policy)
Policy Document (Upon
acceptance of the policy)

22. Underwriting Process
 The underwriting of the insurance policy includes the following process.
• General Information
• Medical Information
• Insurance broker or Agents Statement1. Application
• Medical Exams and tests required by insurance company at the
expenses of insurer2. Medical Examination
• Inspection report from any independent investigating firm/agency
for financial and moral information/ health/character
• The report is prepared on interviews with family member/
neighbors/friends
3. Inspection Reports
• It is a non profit trade association that maintains medical
information on applicants for life and health insurance.
• It maintains an extensive database of medical information and
occupational risks on applicants for health and life insurance.
4. Medical Information
Bureau(MIB)
• The insurance producer or agents who is in position to see and talk
to the clients is able to ask the questions as per the application and
record the responses the answers of those questions.
• These become the basis for whether to accept or decline the
proposed risk.
5. Underwriting in the
Field

23. Rate Determination Methods in
Underwriting
 Judgment Method: In this method, the underwriter using his own
knowledge and experience and the advice of medical
experts/referee/actuaries determines the rate of each prospect clients. The
effectiveness of this rating method depends upon underwriters analytical
abilities.
 Manual Rating Method: In this the early determined
rates/Predetermined rates located in manuals/brochures are used to set
rates for each policy. It is the most commonly used and applied method of
rate determination where the manual rates are specified by the state
insurance department or insurance company or rating agency.
 Merit Rating: Under this method, the manual rates are used and then
modified based on certain risk attributes. The rates modification may be
based on the experience of insured over a specific period. Rates are
determined by evaluating the proportional incidence and gravity
of risk. Incidence is the number of times or frequency with which the loss
is likely to occur whereas Gravity is the amount of financial loss that is
likely to occur due to the risk. The rates can be done on Experience merit
rating, Retrospective merit rating and scheduled merit rating.

24. Types of Risks in Underwriting
 Physical Risk: The risk accessed as per the personal
information of the proposal is the personal risk. It
includes the age of insured, health and medical status of
insured, etc. In this types of risk there are two risk:
a. Increasing Extra Risk: The risk in which there is
high premium policy as per increment in risks.
b. Decreasing Extra Risk: The risk in which there is
low/less premium in comparison because of
decreasing/low risk associated.

25. Types of Risks in Underwriting
 Occupational Risk: The risk which is associated
with the occupation is the occupational risk. The
risk of labor working in the machine and manager
sitting at the chair is the occupational risks.
 Moral Risk: The risk which cover the future and
hidden factors shown in proposal and is of true
intent is moral risk.

26. TYPES OF UNDERWRITERS
 Property and Casualty Underwriters: It normally specializes in a
particular type of property or casualty coverage rather than the complete
concerned with property and casualty. Fire underwriters, commercial
property underwriters, personal property underwriters, marine
underwriters, automobile insurance underwriters. The underwriter must
also be aware of the practical methods that are available or dealing with
these risks and have a detail knowledge of the resources used for
evaluating the application.
 Liability Underwriters: Liability insurance underwriters focuses on
the liability risks affecting commercial business, individual. The liability
underwriters should be capable of evaluating the losses, judge and make
the settlement of insurance policy in order to ascertain any relative
future risk.
 Group Underwriters: The group underwriters are those where the
common rate is applied to the group for insurance after the detail
analysis of the characters of the whole group as well as individual within
the group. The specialized underwriters for group insurance are required
because group underwriting differs from individual underwriting in
terms of operations and regulations.

27. Role of Agents/Broker in Underwriting
 Selection of Risk- Helps in decision making of Insurance
Policy selection
 Looks to the interest of the insurer
 Information about the insured- Knowledge related to the
economic and financial condition, health/medical and
business through investigation or enquiries.
 Complete knowledge of Insured: Being first line of
contact.

28. ACTUARIAL SCIENCE/ACTUARY
 Actuarial science is the discipline that applies mathematical and statistical methods to assess
risk in insurance, finance and other industries and professions. More generally, actuaries apply
rigorous mathematics to model matters of uncertainty. It include the number of interrelating
disciplines most particular the mathematics of probability and statistics.
 The person who perform the actuarial activities/work are the Actuary/Actuaries.
Actuaries are professionals trained in this discipline who analyze the financial impact of risk,
looking ahead into the future. Actuaries uses the skills in mathematics, economics, finance and
statistics to study the uncertain future events related to insurance company.
 Actuaries are the professional who analyze and assemble statistics on probabilities of death,
illness, injury, unemployment, retirement and property loss to design and frame out the
insurance and pension plans and set up the premium structure of policies. Actuary must be
appointed by the insurance company who is working out the insurance and reinsurance
business after seeking the approval of the Authority.
 The actuaries is also responsible for collecting data and information to forecast the future risks
and see how the prediction will affect various aspects of insurance.
 Actuaries is also responsible for making a policy for calculating risks and set risks along with

29. Major Traits/Characters of Actuary/ies
 Analytical Skills
 Public Speaking Skills
 Creativity
 Research Skills
 Human Skills
 Computer Skills
 Comprehensive Skills-Report Writing Skills
 Mathematical Skills

30. Duties of Actuaries
 Review variety of documents
 Compiles the data
 Defines company policies
 Constructing/designing company policies
 Expert in witnessing various forms of litigation.(Law
Suits/Cases)
 Reviews statistical data related to mortality, illness,
accident, disability and retirement and formulating
policy as per the outcomes.

31. Roles of Actuaries
 Calculates insurance rates/Premium
 Rating Procedures
 Ascertaining in advance the uncertain events
 Pricing, product design, financial mgmt, corporate
planning, etc
 Protect the interest of beneficiaries-insurance company
and insured
 Product framing-New Product/Policy
 Preparing insurance documents
 Underwriting Guidelines
 Ensuring the policy conditions is implemented
between the parties.

32. Insurance premium Calculation
 Mortality: It is an expense which is charged by the insurer to
provide the life coverage to the policyholder on the life insured. It is
paid on premature death of policyholder. It is also called the cost of
insurance. It is a very small amount which is already added in
premium amount.
 Interest: It is the rate for discounting the value of future benefits
payable(Liabilities) to the present. It is the interest rate that depicts
the difference between the insurer expected rate of return on
investment and the insurer expects to earn by investing the proceeds
of premiums.
 Net Premium: The product’s estimated total premiums with
investment earnings are likely to exceed its expected total cost of
benefits and expenses. In other words, actuarial present value of all
future premiums must at least equal the actuarial present value of all
future benefits and expenses.