# Other Questions

Question 1

What do the shareholders get?

1. Increase in share price

Investors anticipate that the company’s stock price will increase, enabling them to sell their shares for a profit.

The FTSE 100 index of top UK shares has generated an average yearly price return of 6% over the past 35 years, according to trading platform IG. Due to the sharp rise in energy costs over the past year, Shell shareholders have experienced a 40% increase in the value of their shares.

1. Income from dividends

A dividend is a payment made by many businesses to their shareholders. A dividend is paid to shareholders for each share they possess, typically once or twice a year. These funds come from the company’s profits.

1. Pre-emption rights

When new shares are issued, shareholders have a legal pre-emption right, often known as a right of first refusal. A corporation must offer new shares to current shareholders proportionately for at least 14 days if it wants to issue them.

Question 2

State Central Limit Theorem.

It provides the basis for large-sample inference about a population mean when the population distribution is unknown and more importantly does not need to be known. It also provides the basis for large-sample inference about a population proportion, It is one of the reasons for the importance of the normal distribution in statistics.

The Central Limit Theorem can also be used to give approximations to other distributions. This Is useful if we are calculating probabilities that would take too long otherwise. For example, P(X < 30) where X ~ Bin(100,0.3) would require us to work out 30 probabilities and then add them all up. If we use a normal approximation, the calculation of the probability is much simpler, and the loss of accuracy is slight.

Question 3

What is Asymmetric information?

Asymmetric information in insurance refers to a market situation in which one party in a transaction has insufficient information about the other party which leads to market failure. The problem of asymmetric information is common to all insurance markets.

Question 4

How is Attrition rate calculated?

Commonly referred to as a ‘churn rate,’ a company’s attrition rate is the rate at which people leave. If you break it down, it is the number of people who have left the company, divided by the average number of employees over a period of time

Attrition rate = (No. of separations / Avg. No. of employees) x 100.

Question 5

What is the difference between life insurance and general insurance?

The difference between life insurance and general insurance are as follows:

• Life insurance is an insurance contract, which covers the life-risk of the person insured, while general insurance is an insurance that is not covered under Life insurance.
• Life insurance is a form of investment, while general insurance is a contract of indemnity.
• Life insurance is a long term contract. General insurance is a short term contract.
• In life insurance, premium has to be paid over the year. In general insurance, premium has to be paid as a lump sum.
• In life insurance, the insurable amount is paid either on the occurrence of the event, or on maturity. In general insurance, the loss is reimbursed, or liability will be repaid on the occurrence of an uncertain event.
• In life insurance, the insured must be present at the time of contract. In general insurance, the insured must be present, at the time of contract and loss both.
• Life insurance can be done for any value based on the premium policy. In the case of general insurance, the amount payable under life insurance is confined to the actual loss suffered.

Question 6

How is income tax accounted for in the balance sheet?

Income tax payable is found under the current liabilities section of a company’s balance sheet. Income tax payable is one component necessary for calculating an organization’s deferred tax liability. The calculation of income tax liability is dependent on the company’s home country.

Question 7

Name the top 10 companies according to market cap.

The top 10 companies according to market cap are:

• Apple Inc. ( AAPL)
• Saudi Arabian Oil Co. ( 2222.SR)
• Microsoft Corp. ( MSFT)
• Alphabet Inc. ( GOOGL)
• Amazon.com Inc. ( AMZN)
• Tesla Inc. ( TSLA)
• Berkshire Hathaway Inc. ( BRK.A)
• NVIDIA Corp. ( NVDA)
• Taiwan Semiconductor Manufacturing Co. Ltd. (TSM)
• Meta Platforms Inc. (META)

Question 8

What is Bayes’ theorem?

Bayes’ theorem describes the probability of occurrence of an event related to any condition. It is also considered for the case of conditional probability. Bayes’ theorem is also known as the formula for the probability of “causes”. It is a way of finding a probability when we know certain other probabilities.

Question 9

When the government will increase tax on cigarettes of ITC, why will the tax burden be more on consumers?

High taxes affect the lower income families the most. Some economists see taxes on cigarettes as a regressive tax as the higher tax incidence does not take into consideration the standard of living of the cigarette consumers. The lower income group in the society would bear the higher tax burden compared to the higher income group. As the disparity of disposable income between the two groups vary widely, affordability within the lower income group will fall with a price hike, such that cigarettes will be less affordable to these families. However, as cigarettes are quite addictive in nature, depending on the addiction of the smokers they might not be able to cut down on consumption, in which case they may prioritize the purchase of cigarettes over other necessary things. In such scenarios it will be the lower income families that will be affected the most when taxes increase. Therefore, this is why some argue that taxes on tobacco are regressive in nature. Also, ITC is a luxury brand and people consuming ITC cigarettes will show brand loyalty, thus bearing the tax burden more than the producers. However, some consumers belonging to lower income group might shift from ITC to cheaper brands, just to be able to afford cigarettes and other necessities as well. Most of them refuse to simply quit and start a healthier life, continuing to pay higher taxes and compromising on other goods.

Question 10

What does an insurance company do?

Insurance companies can be important for the stability of financial systems mainly because they are large investors in financial markets, because there are growing links between insurers and banks and because insurers are safeguarding the financial stability of households and firms by insuring their risks.Insurance companies assess the risk and charge premiums for various types of insurance coverage. If an insured event occurs and you suffer damages, the insurance company pays you up to the agreed amount of the insurance policy.

Question 11

Explain the Law of large numbers.

The law of large numbers, in probability and statistics, states that as a sample size grows, its mean gets closer to the average of the whole population.

Question 12

State the Principles of  Insurance.

In the insurance world there are six basic principles that must be met, which are:

• Insurable Interest – If you want to purchase a life insurance plan for another person, you should first prove that you have an insurable interest in their life. Insurable Interest means that you will face a substantial, emotional or another type of loss that will negatively affect you upon the demise of the life insured.This interest is evaluated by the life insurer during the application for the plan and before the payment of the death payout.,For example, if you and your spouse live in a two-income household supporting three children, then your spouse would clearly have an insurable interest in your death since it would create a financial hardship to go from two incomes to one income. That’s why life insurance companies generally allow spouses to purchase insurance policies on their partners’ lives.
• Utmost good faith –  It means that both the policyholder and the insurer need to disclose all material and relevant information to each other before commencement of the contract.
• Proximate cause – Proximate cause refers to the first event, or first peril, in a series of events that cause damage in an insurance claim. The proximate cause itself may not do any direct damage. The insurance policy may cover the proximate cause, but not the event that actually causes the damage, so the policy holder will not be reimbursed for his claim.
• Indemnity – The principle of indemnity states that an insurance policy shall not provide compensation to the policyholder that exceeds their economic loss. This limits the benefit to an amount that is sufficient to restore the policyholder to the same financial state they were in prior to the loss. The principle of indemnity ensures that the insured gets made whole from their loss but will not benefit, gain, or profit from an accident or claim.
• Subrogation – subrogation does not apply to life insurance. Definition of Subrogation can be understood as a fair practice of replacing the policyholder’s place with the insurer. In short, by subrogation, you will offer all the legal rights to your insurer to claim money from a third-party, if he/she is found to be guilty of an accident. Subrogation comes under the indemnity clause. Indemnity clause is a contract between a policyholder and an insurer which shows the respective procedures and obligation to compensate the claim amount against damage or losses to your vehicle.
• Contribution – The contribution principle in insurance is a rule that specifies what happens when a person buys insurance from multiple companies to cover the same event, and that event occurs. The principle says that if the policyholder files a claim with one company, that company is entitled to collect a proportional amount of money from the other involved insurance companies.

Question 13

What do you mean by inflation? What are the types of inflation?

Inflation is a quantitative economic measure of a rate of change in prices of selected goods and services over a period of time. Inflation indicates how much the average price has changed for the selected basket of goods and services. It is expressed as a percentage. Increase in inflation indicates a decrease in the purchasing price of the economy.

Types of Inflation are:

• Demand-pull Inflation: It occurs when the demand for goods or services is higher when compared to the production capacity. The difference between demand and supply (shortage) result in price appreciation.
• Cost-push Inflation: It occurs when the cost of production increases. Increase in prices of the inputs (labour, raw materials, etc.) increases the price of the product.
• Built-in Inflation: Expectation of future inflations results in Built-in Inflation. A rise in prices results in higher wages to afford the increased cost of living. Therefore, high wages result in increased cost of production, which in turn has an impact on product pricing. The circle hence continues.

Question 14

What are the main causes of inflation?

Monetary Policy: It determines the supply of currency in the market. Excess supply of money leads to inflation. Hence decreasing the value of the currency.

Fiscal Policy: It monitors the borrowing and spending of the economy. Higher borrowings (debt), result in increased taxes and additional currency printing to repay the debt.

Demand-pull Inflation: Increases in prices due to the gap between the demand (higher) and supply (lower).

Cost-push Inflation: Higher prices of goods and services due to increased cost of production.

Exchange Rates: Exposure to foreign markets are based on the dollar value. Fluctuations in the exchange rate have an impact on the rate of inflation.

Question 15

How do Insurance companies make profit and state the equation?

There are two basic ways that an insurance company can make money. They can earn by underwriting income, investment income, or both. The majority of an insurer’s assets are financial investments, typically government bonds, corporate bonds, listed shares and commercial property. The assets generate investment income and are chosen carefully to reflect the nature and timing of the insurance liabilities that may need to be paid.

So, the equation is : Profit = Premiums + Return on Premiums – Claims – Expenses.

Question 16

Name some of the most common Actuarial softwares used in the industry.

Some of the common Actuarial softwares used in the industry are:

• Milliman Actuarial software solutions
• Moses
• GGY-AXIS
• Poly Systems
• Prophet
• PTS
• RMISWeb
• SAS
• TAS
• Towers Watson

Question 17

Technology and software are important aspects of the work an actuary does. The hiring manager may ask you this question to ensure you are technologically proficient and can use prevalent actuarial programs. To answer, mention at least two programs you’ve used in the past and be specific about what you like or don’t like. To prepare for this question, you can research the company and try to determine which programs they may use.

Example: “I’ve worked with a few different programs, and so far, Moses is my favorite. I like it because it is flexible and detailed, but I know it may be challenging for those who are new to it. That’s why I like to instruct new hires and show them how valuable it can be when you know how to use it. Prophet is another program I’ve used, and I like that it’s simple to obtain and has a clean user interface.”

Question 18

What is the elasticity of price? State its one application in the real world. What are types of elasticity?

Price elasticity measures the responsiveness of the quantity demanded or supplied of a good to a change in its price. It is computed as the percentage change in quantity demanded—or supplied—divided by the percentage change in price.

If a price change for a product causes a substantial change in either its supply or demand, it is considered elastic. Generally, it means that there are acceptable substitutes for the product. Examples would be cookies, luxury, automobiles, and coffee. A                                                                                                                                        Types of elasticity are as follows:

Price Elasticity of Demand (PED):

Price Elasticity of Demand or PED measures the responsiveness of quantity demanded to a change in price. There are two ways to measure PED- arc elasticity that measures over a price range, and point elasticity that measures at one point.

Cross Elasticity of Demand (XED):

Cross Elasticity of Demand (XED) is an economic concept that measures the responsiveness in the quantity demanded of one good when the price of other goods changes. Also called cross-price elasticity of demand, this measurement is calculated by taking the percentage change in the quantity demanded of one good and dividing it by the percentage change in the price of the other good.

Income Elasticity of Demand (YED):

Income Elasticity of Demand measures the responsiveness in the quantity demanded for a good or service when the real income of the consumers is changed, keeping all the other variables constant. The formula for calculating income elasticity of demand is the percent change in quantity demanded divided by the percent change in income. This concept helps us to find whether a good is a necessity or luxury.

Price Elasticity of Supply (PES):

Price Elasticity of supply (PES) measures the responsiveness to the supply of a good or service after a change in its market price. Some basic economic theories explain that when there is a fall in the price of a good its supply is also decreased and when the prices are on a rise the supply is increased.

Question 19

What is double Insurance?

If one person insures some property, such as a home or business, and takes out two policies covering that property, they have purchased double insurance. Individuals are allowed to purchase as much insurance as they please on their property.

Question 20

Brief note on IFRS17 (International Financial Reporting Standard 17)?

IFRS 17 Insurance Contracts establish principles for the recognition, measurement, presentation and disclosure of insurance contracts within the scope of the Standard. The objective of IFRS 17 is to ensure that an entity provides relevant information that faithfully represents those contracts. This information gives a basis for users of financial statements to assess the effect that insurance contracts have on the entity’s financial position, financial performance and cash flows.

Question 21

What is the role of an Actuary?

Actuaries analyze the financial costs of risk and uncertainty. They use mathematics, statistics, and financial theory to assess the risk of potential events, and they help businesses and clients develop policies that minimize the cost of that risk. Actuaries’ work is essential to the insurance industry.

Question 22

Argue IFRS4 vs IFRS17.

• Comparability of Insurers – Since IFRS 4 was put together in a fairly compact timeframe, just ahead of the EU’s adoption of IFRS Standards, it aimed for minimum rather than maximum harmonization. Under IFRS 4, companies could therefore carry on using national standards when accounting for insurance contracts. This made comparability extremely tough, which is never great for investors. IFRS 17 aims to ensure companies across all IFRS jurisdictions apply consistent accounting for all insurance contracts, regardless of product.
• Transparency and quality of investor information – The new standard looks to equip investors with better information about insurance contracts and how each insurer creates value. According to the IASB, IFRS 17 achieves this by:
1. Combining current measurement of future cash flows with the recognition of profit over the period that services are provided under the contract.
2. Presenting insurance service results (including presentation of insurance revenue) separately from insurance finance income or expenses.
3. Requiring an entity to make an accounting policy choice of whether to recognise all insurance finance income or expenses in profit or loss or to recognise some of that income or expenses in other comprehensive income.
• Confidence and cost of capital – Since these will bring greater transparency around insurers’ operations, industry observers believe that the new standard may help to rebuild confidence in the insurance sector and therefore drive M&A activity. Some of the largest insurers may also see their cost of capital reduced as a result.

Question 23

What is SII?

Solvency II is a far-reaching programme of prudential regulations, which vary in severity depending on the riskiness and diversity of an insurer’s business. Similar to the banking industry’s Basel standards, the Solvency II programme is divided into three areas: Pillar 1 lays out quantitative requirements for the amount of capital an insurer should hold; Pillar 2 covers governance and risk management of insurers; and Pillar 3 addresses transparency, reporting and public disclosure.

Question 24

SII vs IFRS17

1. Scope
• Solvency II is a European legal framework that goes far beyond the mere calculation of a solvency capital requirement. It is a full-blown enterprise risk management paradigm, comprising three pillars that deal with quantitative requirements, corporate governance and internal control functions, and transparency and disclosure requirements. Insurers must disclose a Solvency and Financial Condition Report (SFCR) to the public and must submit to the insurance supervisor detailed information about specific attributes of their business, including the Own Risk and Solvency Assessment (ORSA), that is a fundamental component of Solvency II.
• IFRS 17 is a global reporting standard that has as its chief objective the measurement of performance of insurance contracts in a manner that is aligned with economic principles. It does not specifically address corporate governance or operations of insurance companies, and it does not impact only insurance and reinsurance companies, but also any entity that issues insurance contracts.
2. Purpose
• Solvency II attempts to guarantee the solvency of insurance and reinsurance companies. The idea is clearly to force companies to compute a risk-based solvency capital that is commensurate to the exposure to key risks. Solvency II was not designed to measure financial performance.
• IFRS 17, in contrast, is a tool for measuring risk-based financial performance of insurance contracts.
3. Contractual Service Margin (CSM)
• Given that Solvency II does not measure financial performance, the concept of a CSM is not defined.
• IFRS 17 introduces the CSM. The CSM refers to the carrying amount of the asset or liability for a group of insurance contracts representing the unearned profit the entity will recognize as it provides services under the insurance contracts.

Question 25

What is a matrix?

A matrix is a mathematical structure having rows and columns. The element aij of a matrix, say M refers to the element in the i-th row and j-th column.  The matrices are represented as square or rectangular parenthesis or in boxes. The horizontal and vertical lines of the matrix are represented as rows and columns. The numbers in the matrices are called entries or elements. The matrix size is specified in m rows and n columns like m-by-n matrices.

Question 26

How to perform matrix multiplication of two matrices of dimensions  4 x 3 and 4 x 3?

It is not possible to perform matrix multiplication of dimensions 4 x 3 and 4 x 3 since the column size of the first matrix and row size of the second matrix must be equal. Thus, by transposing one of the given matrices, multiplication is possible.

Question 27

What is the difference between financial assumption and demographic assumption?

In order to calculate the pension obligations of a certain company, an actuary must predict the present value of future benefits that will be paid to the plan’s participants. An actuary uses demographic assumptions to evaluate the projected benefits of all the participants in a certain plan. These demographic assumptions include assumptions about mortality, disability, termination of employment, and retirement.

Financial assumptions are the guidelines you give your business plan to follow. They can range from financial forecasts about costs, revenue, return on investment, and operating and startup expenses. Basically, financial assumptions serve as a forecast of what your business will do in the future.

Question 28

Are you aware of the different insurance Sectors?

Yes, I am aware of the different insurance sectors. The Indian Insurance Sector is basically divided into two categories – Life Insurance and Non-life Insurance. The Non-life Insurance sector is also termed as General Insurance. Both the Life Insurance and the Non-life Insurance are governed by the IRDAI (Insurance Regulatory and Development Authority of India).

Question 29

Name some companies which have low beta.

Beta is helpful in understanding the overall price risk level for investors during market downturns in particular. The lower the Beta value, the less volatility the stock or portfolio should exhibit against the benchmark.

Companies which have low beta are outside India are:

• AllState Corporation
• Brown-Forman
• Davita Inc.
• Quest Diagnostics
• Tyson Foods

Companies which have low beta in India are:

• Guj.St.Petronet
• Asian Paints
• Nippon Life Ind.
• Pfizer
• Ajanta Pharma

Question 30

Name the top 10 dividend paying companies.

The top 10 dividend-paying companies are:

• Vedanta ltd
• IOCL
• Power Finance Corporation Ltd.
• Hindustan Petroleum Corporation Ltd
• Coal India Ltd.
• Hindustan Zinc Ltd
• Oracle Financial Services Software Ltd.
• ITC Ltd
• Bharat Petroleum Corporation Ltd.
• Ambuja Cements Ltd.

Question 31

What is the name of the RBI Governor?

Shaktikanta Das is the name of the RBI Governor.

Question 32

What do you mean by pricing in Insurance?

Pricing is one of the most essential components of an insurance company. It is the process by which an insurance company sets up the premium that needs to be charged from the policyholder by considering various risk factors such as age, mortality, gender, location, etc.

Question 33

What are the measures of national income?

The 5 measures of national income are:

• Gross Domestic Product (GDP)
• Net National Product (NNP)
• Gross National Product (GNP)
• Personal income.
• Disposable income.

Question 34

How can an insurance company deal with longevity risk?