Subject CT9: Business awareness Online Course

Pre-course assignment of 7 exercises

There are seven exercises within this workbook which you must complete. You must also complete
the declaration on Page 1 of this assignment and then upload the workbook at IAI website under your
member login

You need to submit the completed assignment by 7th December 2013 under your IAI Member login.

Any assignment which is not submitted will not be eligible for the exam and you will have to apply to
take the exam again. You may commence your work on these exercises at any time before the start
of, or during, the 10 day business game period.

Contents
IAI CT9 - Jan 2014

GUIDELINES FOR STUDENTS

Please read the instructions below and sign the declaration before submitting the completed workbook.

1. This workbook is intended to provide preparatory material for the CT9 Online course
2. You are expected to complete all sections of this workbook prior to appearing the online examination
3. Please ensure that the completed workbook is uploaded on IAI website under your member
login by 7 t h December 2013
4. Ensure that you complete this workbook in all earnest – your answers will be reviewed to
ensure that a reasonable standard has been achieved. This is a pre-requisite for appearing
the online examination.
5. You will be given feedback on the quality of your work prior to the exam.
6. You are prompted to adhere to the Actuarial Code of Conduct while attempting this
workbook and thereafter. It is critical that all work that you submit is your own.
Plagiarism of any kind will be treated seriously and considered a breach of examination
regulations
7. You must sign the declaration below stating that this is your own work.

DECLARATION
I declare that all material I have presented in this workbook is my own work and that I
understand any deliberate acts of plagiarism are deemed to be in breach of examination regulations.

Name Kanika Jain…………………………… Date Dec 3,2013……………………….……………… Sign Kanika

Jain………………………….………………
IAI CT9 - Jan 2014

Exercise 1
Financial Services Companies
Having studied the tutorials on the I-coach website, and identified some relevant news items in your
own country’s newspapers or magazines.

How do financial services companies create value for customers – that is, what
underlying needs are they satisfying? Think about:

The need for security…

Financial services provided by many firms like retail commercial banks, investment
Banks, insurance companies, mutual fund companies and securities brokers.
Financial services companies create values by providing financial protection against death,
loss, illness, theft also allow customers to make money by investing in the markets, stock
exchanges. They provide risk management services to customers by taking the
responsibilities for the customer’s insurance.

The need to fulfil desires…

A financial services company manages, invests, exchanges, or holds money on behalf of

customers to meet the costumer future financial requirements either on retirement, loans for
home, car, etc. The customer’s needs for personal business, investment to earn high risk
adjusted returns as well as their short term credit needs / long term credit needs could be
fulfilled by Financial services companies.

The need to meet responsibilities…

An individual confronts various responsibilities at different stages of his/her such as growing
their children, meeting their educational expenses, marriage of children, care of old age
parents etc., financial services company helps costumer to meet these responsibilities.
Financial services companies provide careful financial management specific to customer’s
needs

Other…
For immediate spending companies provide credit cards/ debit cards for convenience so that
there is no need to carry large amounts of money physically

Why does anyone place their funds in the hands of financial services
companies?

1. To gain from the expertise provided by Financial Services Companies as they employ
specialist fund managers who can strategically earn higher returns.
IAI CT9 - Jan 2014

2. To make efficient use of their capital.

3. To protect themselves from future uncertainties
4. . To generate higher returns as companies invest pooled funds in large amount.
5. To reduce risks as Financial Services Companies offer savings and economic stability
6. To access opportunities.
7. Diversification

What sources of advantages can financial services companies use to create

value for customers?

e.g. Superior assets such as…

Protecting funds, diversify investment, reduce risk and good returns. Financial Services
companies have better sources/ assets to serve individuals. A bank can protect an individual’s
money, it can diversify the risk eg, mutual fund companies pools money of large number of
investors and invest in diversified areas reducing risk which is not possible for individuals.

Strategic relationships such as…

… specialised fund managers, who has good experience in investment can generate good
returns for large pool of customers. Specialised knowledge about financial instruments to
financial companies employees helps individual to understand their needs and invest
according to it.

Distinctive capabilities such as…

 Benefiting from Economies of scale

 Professional expertise to gain maximum returns.
 There may be tax advantages.
 Diversification
 Specialising in particular class of business such as with-profits or unit linked
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How do financial services companies capture value from the customer for
providing services? i.e. in which ways can they generate profits?

They earn money on a regular basis by…

The financial companies earn premium from the individuals who purchase insurance
protection from them.
In lieu of the services provided to its customers, they charge for their services in forms of fees
and commission
Investing or lending to borrowers at a higher rate of interest. The difference between earning
and payouts would be the income for the service provider.

They earn money for specific transactions when…

They charge for customer based consultation that they provide to their customers (individuals
and other businesses as well).
They charge for providing time to time contractual services, e.g. a CA firm may provide their
auditing services to other companies at the end of every fiscal year on a contractual basis.
 At the time of termination of the contract by the customer
 By charging penalties from customer for defaulting on payments.

What factors have been changing the levels of profits companies can gain from
specific types of products or segments of the market?

Profit margins are being squeezed by…

government regulations
Other companies or competition due to globalisation
, Financial instability,
Rise in inflation
Recession.
Lower interest rates
Increased costs due to wage inflation
Political Instability
Increased costs due to wage inflation

Overall sales volumes are being affected by…

Other than market conditions like inflation, new technology, ease of financial processing.
Customers may also be a reason as they may not hire or require the services of the financial
companies which may drop the overall sales, e.g. some people buy and sell shares from their
home due to which people stop using the consultation of the financial companies.

What external factors are now having an impact on customer needs and how do
companies serve these needs? What will change in the future?

Inflation: Due to the rise in inflation the value of money is lowering very fast. Due to this
customer are unable to understand how to invest their money and how to achieve the full
benefits of the market. The financial companies help the customer to foresee the future
IAI CT9 - Jan 2014

possibilities and help them to act accordingly.

Technology: Due to ever changing and the vast growth of the technological world there
always will be something or other that the customer will want, whether it be a car, phone, new
machinery for business etc. to fulfil these needs the financial companies can help create
possible schemes, plans and policies that can help consumers to easily afford such needs.

Government Regulations: Sometimes government implied rules and regulations create a

need or a requirement for the customer that may or may not be voluntary by the customer.
Nonetheless it has to be addressed. This is where a financial company help the customer to
take care of such matters, e.g. may include percentage on income tax return, pension
policies, other government regulated taxes, etc.

Market Fluctuations: Any fluctuation or unforeseen event in the market can cause heavy
loses to people who are not familiar to the operations of the financial world. In such cases,
financial companies take care of such events by foreseeing and effectively taking care of the
customers’ money by modulating the cash flow that best suit the customer and market needs
at the moment.

All these factors are subject to heavy changes in the future and will continue to effect the
workings of the financial companies.

How do financial needs change in relation to an individual’s life stages in adult life?

Young adults
- People in this group are young and have ambitions to buy new car, house and other
things that satisfy their emotional needs like expensive mobiles, cloths, etc. They
sometimes also think about things like clearing past debts and tax saving, but often
they aspire to buy something that they can’t afford yet.
- They might need funds for self education.
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‘Building family’ stage

- People in this group are usually newlyweds and aspire for bigger homes for their
future family.
- Future family also entails savings for the education and marriage of their children.
- In certain cases, people also start to think about pension plans, long-term investment
in finance and hard assets.
Middle age
- People in this category will start saving for retirement.
- They will also try to increase their personal assets (house, car, property, etc.) and
satisfying personal and emotional needs.
- they also start contemplating about reducing financial dependency on children after
retirement and financial planning for health benefits for today and tomorrow.
Retirement
- Individuals at this stage may require finances to meet their health needs
- Responsibilities are at their least so they only care about non-investment
expenditures and further reducing financial dependency on children.
- Need money for increasing long term care(health needs)
- For financing their day to day expenses.

Are these life stages as predictably linked to typical age ranges as they once were?

Yes, there has been a lifestyle shift and there is a greater number of variability seen from the
defined age ranges.

Young Adults: Age 16-25

Building Family Stage: Age 25-35
Middle Age: Age 35-60
Retirement: Age over 60

In current times, the life stages themselves have undergone a change because of various
factors like:
- People’s lifestyle has changed and they have started to prioritise and are changing
the needs according to the modern trends and requirements.
- Increase in longevity will have longer life for retired population.
- Due to longer educations people start working at later ages
- Increased variability is due to longer / advanced studies, longer working life due to
late retirement
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Exercise 2

Financial Services Industry

Having studied the Financial Services Industry slides and notes (Item 5 on the Preparatory Study
page), describe in the financial services industry proforma in 900 to 1100 words corresponding
matters applicable to your own country.

Enter your descriptions in the here

Comprising primary markets, foreign direct investments (FDI), Foreign Institutional

Investment (FII), alternate investment options, banking, insurance and asset management
segment, the Indian financial services market happens to be one of the oldest and robust
across the globe. Financial sector of India comprises of foreign direct investments (FDI),
alternate investment options, banking, insurance and asset management segment. India
is highly preferred for investment because of the high savings rates (25 percent plus). In
India financial product’s penetration is low as well. It is a vast market for mutual funds,
portfolio and wealth management services, insurance and other financial products. There
is a huge aspect of savings in physical assets such as gold and real estate, the Indian
Government is focusing on policy initiatives to attract savers towards financial markets
through incentives and tax savings.

Today the Indian financial structure is inherently strong, functionally diverse, efficient and
globally competitive. During the last fifteen years, the Indian financial system has been
incrementally deregulated and exposed to international financial markets along with the
introduction of new instruments and products.

Financial services in India today can be majorly classified as the following

Insurance Sector

Insurance sector has been opened up for competition from Indian private insurance
companies with the enactment of Insurance Regulatory and Development Authority Act,
1999 (IRDA Act). IRDA was established to protect the interests of holder of insurance
policy and to regulate, promote and ensure orderly growth of the insurance industry. India
is the fifth largest market in Asia after Japan, Korea, China and Taiwan. Indian market has
tremendous potential for investment in insurance sector. This is due to the fact that Indian
middle class customers are sensitive towards future plans and hence are interested to
buy life, health and disability and pension plan products. Also, investment in insurance
provides tax rebate to the investors. There are opportunities in the pensions sector where
regulations are being framed. Less than 12 % of Indians above the age of 60 receive
pensions. As a result a large number of public and private players are competing today in
both life and general insurance segments.

Indian life insurance sector collected new business premiums worth Rs 11,742.7 crore
(US$ 1.96 billion) for April-May 2013, according to data from the Insurance Regulatory
and Development Authority (IRDA). Life insurers collected Rs 1, 07, 010.7 crore (US$
17.84 billion) worth of new premiums for the financial year ended March 31, 2013
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Meanwhile, the general insurance industry grew by 19.6 per cent in April-May period
of FY14, wherein the non-life insurers collected premium worth Rs 13,552.46 crore
(US$ 2.26 billion)

Banking Sector
The banking sector is the leading sector of financial system in India. It has undergone
exceptional growth along with significant improvements in its quality of assets and
efficiency in the post liberalization period. From providing plain vanilla banking services,
banks have gradually transformed themselves into universal banks. ATMs, Internet
banking, mobile banking and social banking have made "anytime anywhere banking" the
norm now. Governed by the Banking Regulation Act of India (1949), Indian banking sector
has Reserve Bank of India (RBI) as its central monitoring body. RBI is the regulatory body
who is responsible for controlling the money supply and foreign exchange in the market
through different monetary policies. It is also serves as the bank for Government of India
and for all the commercial banks in India.

Over the years, the condition of commercial banks has improved significantly in terms of
capital availability, asset quality, risk management and profitability. Deregulation of banks
has further increased revenue options for the banks by diversifying its profile into
investment banking, insurance, credit cards, depository services, mortgage,
securitization, etc. Since liberalization, the competition in this sector has increased
tremendously. Emergence of new commercial banks along with foreign banks increased
the competition within banking sector and also with other segments of the financial sector
such as mutual funds, Non Banking Finance Companies, post offices and capital markets.

The banking sector is highly correlated with the economy of the country. Increasing
spread of mobile banking, which is expected to become the second largest channel for
banking after ATMs, will accelerate growth of the sector.

According to the Reserve Bank of India (RBI)’s ‘Quarterly Statistics on Deposits and
Credit of Scheduled Commercial Banks’, September 2012, Nationalised Banks accounted
for 52.0 per cent of the aggregate deposits, while the State Bank of India (SBI) and its
Associates accounted for 22.3 per cent. The share of New Private Sector Banks, Old
Private Sector Banks, Foreign Banks, and Regional Rural Banks in aggregate deposits
was 13.6 per cent, 4.8 per cent, 4.3 per cent and 2.9 per cent, respectively

India’s foreign exchange (forex) reserves stood at US$291.3 billion for the week ended
Nov 29, 2013, according to data released by the central bank. The value of foreign
currency assets (FCA) – the biggest component of the forex reserves – stood at US
$248.865 billion, according to the weekly statistical supplement released by the RBI.

Mutual Funds Industry in India

India’s asset management companies (AMCs) have witnessed growth for the fifth
consecutive quarter wherein their average assets under management (AUM) during April-
June 2013 increased by 3.68 per cent. The AUM’s value touched a new high of Rs 8.47
lakh crore (US$ 141.17 billion), according to the latest statistics available from industry
body Association of Mutual Funds in India (AMFI).

Private Equity, Mergers & Acquisitions in India

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Favourable demographics and growth opportunities keep India an ‘attractive’ destination

for merger and acquisition (M&A) activities across diverse sectors including consumer
goods and pharmaceuticals, according to global consultancy Ernst & Young.
The value of M&A deals in India stood at US$ 4.5 billion in the March 2013 quarter,
according to Thomson Reuters’ India M&A First Quarter 2013 Review. Meanwhile, there
were 90 private equity (PE) deals valuing US$ 1.04 billion during January- March 2013
quarter, reveal data from Four-S Services.

Foreign Institutional Investors (FIIs) in India

FIIs have infused US$ 26 billion in the Indian stock market during the fiscal ended March
31, 2013, according to latest data available with the market regulator Securities and
Exchange Board of India (SEBI). The amount is the highest ever since overseas entities
started investing in the country.
The number of registered FIIs in India stood at 1,757 in FY 2012-13 while the number of
FII sub-accounts rose to 6, 335, from 6,322 at the end of 2011-12.

Financial Services: Government Initiatives

In its latest attempt to attract international investors, the Government has simplified the
process for FIIs investing in Government and corporate bonds. In the newly devised
streamlined procedure, the Government, SEBI and the RBI have decided to remove sub-
limits for FIIs within the overall cap for bonds. From now on, there will be two ceilings – a
US$ 25 billion limit for investment in government securities (G-Secs) that has been
formed by merging G-Secs (old) and G-Secs (long-term). In addition, there will be a
US$51 billion sub limit for corporate bonds that will include the existing one for FIIs
(US$25 billion) , qualified foreign investors(QFIs) (US$ 1 billion) and US$ 25 billion for
FIIs in long term infrastructure bonds.

Moreover, the honourable Finance Minister, Mr. P Chidambaram is very much confident
about the introduction of necessary amendments to the Insurance bill in the coming
season. The Bill seeks to raise foreign investment cap in the sector from 26 percent to an
improved 49 percent.

Road Ahead
Both the Houses of the Parliament have recently passed the much awaited Banking Laws
Amendment Bill to give a face-lift to the Indian banking industry as the initiative has paved
way for more banks (domestic as well as international) in the market. This will not only
create a healthy competition among the players in the industry, but will also escalate the
style of operation and technology.
IAI CT9 - Jan 2014

Exercise 3
Strategic thinking
Having studied the tutorials on the I-coach website, complete the strategic thinking exercise indicated
in the table below according to the month of your birthday.

The month of your Your exercise

birthday

January Exercise A: page 7 of this workbook

February Exercise A: page 7 of this workbook

March Exercise A: page 7 of this workbook

April Exercise A: page 7 of this workbook

May Exercise B: page 17 of this workbook

June Exercise B: page 17 of this workbook

July Exercise B: page 17 of this workbook

August Exercise B: page 17 of this workbook

September Exercise C: page 25 of this workbook

October Exercise C: page 25 of this workbook

November Exercise C: page 25 of this workbook

December Exercise C: page 25 of this workbook

IAI CT9 - Jan 2014

I have completed exercise: C

Exercise 3: Using strategic concepts

Exercise A – Briefing note

The business issue: developing premium rates in a capped environment.

The Scenario

You are a senior product manager in VAULT, a financial services company established in 1980.
VAULT offers a very wide range of mass-market Savings and Protection products. Through most of
its history, it has enjoyed steady growth and profitability.

This has been because of:

 A brand reputation built over decades. High awareness of its brand has allowed it to
command a significant premium over identical or similar competitive products.
 Healthy profit margins arising from the different types of charges on its products and the
recurring nature of some of those charges.
 The fact that some long term products are difficult for consumers to switch out of, once
purchased.

However, in recent years, VAULT’s situation has gradually become less comfortable due to factors
affecting the industry as a whole. Costs of selling and administration have risen significantly, even
more than the average rise for the industry. Internal discussions on this identified the reasons as
being:

 The breadth of its product portfolio, rising costs of staff training, and technology costs for
record keeping.
 The various way charges are levied, to make them more acceptable to end customers.
 Investment in building distribution through superior Brokers, offering them a variety of
commission structures and above-average commissions.
 Increasing costs of complying with legislation.

This was not a concern when financial markets were growing especially the equity markets. As
earnings from charges relate to the value of assets under VAULT’s management, rising costs were
covered without improving efficiency or market share. However, the last few years brought far
IAI CT9 - Jan 2014

different conditions: a long market downturn affecting the value of assets; less new business due to
low consumer confidence in the markets and providers; and increasing scrutiny of the retail finance
market by the government.

Government interest is driven by its need for people to be financially independent, hence reducing
their reliance on the State. Unfortunately, a review the government initiated on the level of
competition in the retail finance sector did not indicate consumers are rushing to increase their
purchases of financial products. The Review found the consumer to be in a weak position vs.
providers, and that it was this very weakness that determined how the industry was structured and
operated.

The review concluded:

 Competitive forces in the industry do not work effectively to deliver cost efficiency or value for
money to consumers.
 Savings levels are insufficient, especially among the less well off, in part because of the high
cost of serving this segment.

The Review stressed that in truly competitive markets, companies are forced to offer value for money
whereas in retail finance, relationships between the price and quality of products are inherently
difficult - or impossible - to assess. This is largely because frequently product and advice costs are
bundled together in ways not transparent to the consumer.

As financial sector players had little incentive to change this ‘status quo’, the government set in train
various steps aimed at rebalancing the level of power between consumers and financial providers and
to meet two top line objectives:

1. To increase competitive intensity in the industry, creating greater pressures for price and
quality improvements.
2. To make savings more accessible.

The steps towards this included:

 Quasi regulation in form of simpler products – the introduction of capped charge

‘standardized’ products with criteria for their product terms set down by government.
 Consumer education – including tables published by the Insurance Regulator to help the
media and consumers to compare charges made by providers for competing products.
 Initiatives to govern industry conduct – especially in how the sales process is handled and
information is provided to customers.

Overall, these influences have created an environment where, in the words of one senior VAULT
executive, it is ‘change or be changed’. This is already occurring to some extent. The introduction of
‘standardized’ capped-charge products resulted in some providers lowering charges on similar
products.

As the industry had little to gain by wholeheartedly promoting these standardized products, there is a
growing feeling that the government must take further steps to push its own vested interest in seeing
these, or equally good value products, made more widely available. In fact, your Chairman has
IAI CT9 - Jan 2014

received clear signals that a company of VAULT’s standing will be expected to be showing a good
example…

Ranjeet Kumar, the director responsible for life assurance, has called you to join a discussion on the
implications for the business in light of these developments.

As the government thrust is to encourage more transparency on the price and quality of products and
services, Ranjeet has drafted out his thoughts on potential price/quality positions in the market.

Ranjeet’s honest appraisal is that currently many of VAULT’s products would fall into a ‘premium price,
average quality’ position. The danger is these will be exposed as not offering good value as
comparative information becomes more widely available. Research has shown that consumers are
paying the VAULT ‘brand premium’ due to familiarity rather than any deep attachment.

Ranjeet also says some VAULT products sit in the ‘medium price, average benefits’ position. The
challenge for these - and for VAULT overall if it tried to move further into this position - would be in
justifying charges higher than those for ‘Standardized products’. The government will ensure the
Standardized products offer at least average benefits at a low price, making them better value than
any similar products which are priced higher. In any case, given the government’s objectives, it is
likely the pressure will be on VAULT to offer Standardized products itself.

Ranjeet’s draft of potential market positions, based on ‘price/quality’ relationships.

Price

HIGH LOW

HIGH Ben
Premium price efit
Medium price Low price s
High benefits
High benefits High benefits
VAULT future?

Low price
Premium price Medium price
Average
Average Average
benefits
benefits benefits
‘Standardized’
VAULT products VAULT products
products
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Premium price Medium price Low price

Poor benefits Poor benefits Poor benefits

LOW

If the market polarises into the segments Ranjeet has examined of:

1. Premium price, high benefits products and services

2. Streamlined, low price ‘standardized’ products

this will have big implications for VAULT.

For the future, Ranjeet is asking the team to consider the two different competitive positions he has
identified – for the ‘premium price/high benefits’ and the ‘low price/average benefits’ position for
Standardized products. (See above)

What you need to do

You must consider some of the issues Luke wishes to explore. Then you must complete Grid A, Grid
B or Grid C depending on your day of birth as follows:

Your day of birth The grid you must complete

1st to 10th Grid A

11th to 20th Grid B

21st to 31st Grid C

Grid A: Look at the aspects of competitive positioning in the left column of Grid A(i). Consider how
the issues in the scenario may have implications for customers, product/service, geographic area,
channels to market and level of vertical integration. Enter your thoughts about the implications in the
right hand column of Grid A(i)
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Set out in Grid A(ii) what you consider to be the existing sources of competitive advantage in respect
of the items in the left hand column.

Grid B or Grid C: Use the right hand column of Grid B(i) or Grid C(i) to enter ideas on what VAULT
would need to do in order to build the proposed competitive position described.

Think about what potential sources of advantage would be needed to compete in these positions.
What existing sources of advantage does VAULT have now, and could it use them to compete in the
new position(s) described? Enter your ideas in the right hand column of Grid B(ii) or Grid C(ii).

It is usually difficult to compete in both high price and low price positions at the same time, as they
can require very different sources of advantage. So you need to consider if there are some
capabilities or advantages relevant to both ‘premium’ and ‘Standardized’ segments – perhaps if they
are used in different ways to create customer value for each position?

VAULT Company Background

Established in 1980 and headquartered in the Mumbai. VAULT operates in Urban, Semi Urban and
Rural areas.

Originally selling only through its extensive direct sales force, in the past fifteen years it changed its
distribution methods to also offer its products through ‘bancassurers’ and Brokers.This was partly due
to the rapid increase in product variants it created, often to take advantage of the varied tax
treatments levied on different products. These then required higher skills in those selling them. In the
past ten years, the number of staff in its direct sales force has reduced, and it has made considerable
efforts to extend the breadth and depth of its relationships with Broker firms and Bancassurers. It has
pursued this distribution aggressively, paying some of the highest commissions in the business.
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Grid A (i)

Reviewing VAULT’s existing competitive positioning and issues affecting it

Existing Competitive
How issues outlined in case may affect positioning decisions
Positioning

Customers
Broad base of ‘mid
market’ customers.

Product/Service
Very broad product
portfolio

Geography
Currently operates in
Urban, Semi Urban
and Rural areas

Channels to Market
Access to end
customers is through:
 Brokers networks.
 Retail outlets
(Bancassurers in
city centres).
 Direct to the
customer (direct
marketing).
Level of Vertical
Integration
Where is the company
active in the industry
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Value Chain? Which

functions are ‘in house’
and which are ‘out
sourced’?
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Grid A (ii)

Existing sources of competitive advantage

Superior
Assets

Distinctive
Capabilities

Strategic
Relationships
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Grid B (i)

Competing in a ‘premium’ position

Competitive
How would you compete in this position?
Decision:

Customers

Product/ Service

Geography

Channels to Market
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Level of Vertical
Integration
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Grid B (ii)

Building competitive advantages for a ‘premium’ position

How could existing advantages help the company compete in a ‘premium’ position? (Or be used to
build new advantages relevant to this position?)

Superior
Assets

Distinctive
Capabilities

Strategic
Relationships
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Grid C (i)

Competing in a market for ‘Standardized products’

Competitive
How would you compete in this position?
Decision:

Customers

Product/ Service

Geography

Channels to Market
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Level of Vertical
Integration
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Grid C (ii)

Building competitive advantages for a ‘Standardized products’.

How could existing advantages meet the key success factors for competing in market for
‘Standardized products’? (Or how could they be used to build an advantage relevant to this market?

Superior
Assets

Distinctive
Capabilities

Strategic
Relationships
IAI CT9 - Jan 2014

Exercise 3: Using strategic concepts

Exercise B – Briefing note

The business issue: educating consumers about why values of funds fluctuate
and affect their pensions and investments.

The Scenario

You are the spokesperson for LifeSage, a major Life insurance company. Publicity continues to
highlight the fact that growing numbers of endowment (both Unit Linked and With profits)
policyholders are being disappointed by the value of their accumulated fund at its maturity date
compared with the projections they had received when taking out the policies. Often, they are also
given significantly different figures within a short time frame between asking for projections in the run
up to the maturity date, and the final figure they are quoted. In the light of growing criticism, you have
been asked onto a TV consumer programme to explain, on behalf of the financial sector, why fund
values can vary so greatly from projections.

You know that fund values fluctuate for varied and complex reasons, but you suspect the interviewer
will try to focus solely on the charges and performance of companies such as LifeSage, which
marketed the policies and managed the funds.

As a condition of appearing on the programme, you have told the producer that while you will
acknowledge points they may make about the financial sector, your key aim will be to explain the
external factors that affect fund values and are beyond the control of the providers.

The producer has stressed you should not make the message too complex for a general TV audience
and that your airtime is limited, so a few key messages will have more impact than a mass of facts
and figures.

A colleague has suggested your message might be more memorable if you took a broader view than
purely economic factors. A useful way to think about this might be to use the PEST framework
(political, economic, societal, technological shocks impacting businesses), to think about how to
explain the different influences at work.

You previously asked a junior executive assistant in your team to gather some research material and
some key points have been collected, but currently it is a jumble of facts and issues and the assistant
has now had to move on to another task.

So you now need to sort through the headlines to identify the most significant underlying issues that
have affected policyholders whose funds are reaching maturity now and in the next five years. If you
think there are more significant factors than are reflected in these headlines you can use your own
ideas in your message.

What you need to do

1. Read the summary of recent ‘headlines’ gathered from newspapers by your executive
assistant – see below. The Below headlines are just to give an idea of what may be
possible reasons for the fluctuation. The student is expected to come up with at least 2
reasons not covered in the headlines.
IAI CT9 - Jan 2014
2. Look at the PEST framework document to help you identify the underlying issues that have
led to both the topical newspaper headlines provided as well as the reasons that the student
has identified. Identify which are major factors that have an impact on the value of funds.
3. Use the template provided to note the two or three most important factors in each of the
PEST categories that you would mention in your interview and why they have had an impact
on fund values.

Newspaper headings

Do you know where your money is invested – equities, bonds or fixed deposits? Consumers
urged to learn more about the funds their investments are in, to better understand their future
prospects.

Financial Index now unbalanced by market value of major company representing high
percentage of the index value – what does this mean for tracker funds?
Exceptional growth in Japan raises value of specialist regional funds.

Will ‘with profits’ investors be without profits in future, as so-called ‘smoothing’ effect is
defeated by poor market returns?
Low deposit rates attract cautious investors into bonds.

Government raises limit for premium bonds – and cash keeps flowing in from savings looking
for wins.
Increasing regulatory demands increase cost burden in financial companies.

Savers suffer, but borrowing breaks previous records to make the most of low interest rates.

Demand for equities increases prices – is this the start of the next bull market?
Public spending set to overshoot by many thousand crores – government gets ready to issue bonds to
finance borrowing.

Financial companies sell equities to ensure they meet new solvency requirements.
Politicians tell us to expect a low-inflation future – but our perceptions are shaped by our high-inflation
past.

Key Highlights of the Union Budget - Government Introduces a Securities Transaction Tax.
Growth in Indian equity markets expected to lag behind other world regions.

Technology – administration of funds may become more streamlined, therefore saving costs.
Consolidation in finance sector expected to reduce costs - but major players spend more on winning
customers.

Computer virus wipes millions off corporate profits…and share values.

Personal savings ratio in urban India drops to lowest level in 10 years, as consumers’ attitude to debt
and security changes.

Funds that sold shares in bear markets now miss out on rising markets.

Government orders financial companies to speed up compensation payouts for mis-selling.

Computerised Exchanges have raised interdependence and volatility of markets.
IAI CT9 - Jan 2014
Borrowers facing interest rate hikes.
Commodities rise in value as growing markets suck in raw materials for manufacture.

On-line services help individuals manage their own investment portfolios.

Diamonds& agriculture land. …Investors head for anything other than conventional savings.

Money moves from quoted companies to small ventures as investors look for higher growth.

The PEST framework

The following is a breakdown of sub-issues within the PEST framework. Use it to help you identify
underlying factors that have led to the newspaper headlines you have been given and which may
have a major impact on the values of a fund.

i) Political/legislative factors
 Government attitude to anti-competitive practices and public interest
 Health and safety issues
 Environmental controls
 Trade regulations
 Employment law
 Tax regimes
 Government stability

ii) Economic factors

 The stage of the business cycle
 Growth trends
 Inflation
 Money supply
 Rates of unemployment
 Disposable income
 Cost of energy and base materials

iii) Societal factors

 Demographics
 Income distribution
 Polarisation of income
 Welfare needs
 Social mobility
 Life style changes
 Attitudes to work/leisure
 Education levels
 Consumer power
 Ethics

iv) Technological trends/shocks

 Discoveries/innovations
 Speed of technology transfer
 Rate of obsolescence
 Government investment
 Incentives to industry sectors
IAI CT9 - Jan 2014

Why the factor may have an impact on the value of a fund

PEST Factor
IAI CT9 - Jan 2014

Political /
Legislative
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PEST Factor Why the factor may have an impact on the value of a fund
IAI CT9 - Jan 2014
IAI CT9 - Jan 2014

PEST Factor Why the factor may have an impact on the value of a fund
IAI CT9 - Jan 2014
IAI CT9 - Jan 2014

PEST Factor Why the factor may have an impact on the value of a fund
IAI CT9 - Jan 2014

Exercise 3: Using strategic concepts

Exercise C – Briefing note

The business issue: treating customers fairly

The Scenario

You have just been promoted to acting CEO of AZURE, a market leader in general insurance with a
particular strength in property policies.

The Communications Director has asked you to help arrest damage being done to the company brand
by media commentators running a story about a claim AZURE is refusing to pay out on. The angle for
the media coverage is to contrast AZURE’s current behaviour versus its new advertising campaign,
based on the bold claim of being ‘the nation’s favourite insurance company’.

The problem revolves around a group of customers who held AZURE insurance policies covering their
buildings and home contents. The customers lived in a newly-built block of flats built on a site of
reclaimed land. Recently, extreme weather conditions and heavy rains had caused flooding, which
led to some land slippage beneath the foundations of the flats.

AZURE were advised of the situation immediately and gave the go-ahead for emergency work to
quickly underpin the building and prevent much greater damage. The Managing Agent paid for the
work from the residents’ management account, and subsequently lodged a claim with AZURE.

The construction company for the properties had negotiated a group deal with AZURE, and had
bundled the first year’s buildings insurance in a package of other benefits offered ‘free’ to buyers of
the 50 flats. This saved each of the householders the equivalent of Rs. 5000. All the customers had
taken up AZURE’s offer to add contents insurance to their policy, at an average extra cost of Rs.
5500. At the time, AZURE’s sales unit were pleased, as they estimated it normally costs the company
around Rs.1000 to sign up a new customer.

However, AZURE’s claims investigators soon revisited the site and, on closer examination with other
experts, concluded that the construction company had cut corners when preparing the land and the
building’s foundations. This meant some declarations the builder made when negotiating the bulk
contract were not accurate and AZURE declared the contract invalid and stated this released them of
any liability. The builder was contacted, but disputed the finding and denies any responsibility.

The Director of Claims says that the company’s lawyers advise that AZURE is within its rights not to
pay out if a declaration made on the contract was untrue. He also says this also makes the Contents
insurances invalid – because if AZURE had known the risks to the building, they would not have
underwritten the contents business. He further emphasises his position by pointing out he is following
the company’s stated objectives – to put shareholders first. Shareholders’ interests are not served by
making payments on large claims when these can be avoided. Not only that – payouts on claims also
affect future premiums. This claim for the building underpinning is Rs. 1 Crore – a significant sum!
On top of this, combined contents claims from the 50 flats total around Rs. 12 lakhs.

This implies a payout per policy of over Rs. 2 Lakhs and, even if their renewal rates were raised
above the average increase of 5% per year, it would take years to recoup the payouts on these
policies.
IAI CT9 - Jan 2014

The Communications Director, however, disagrees strongly. She states that the householders were
unaware of the risks, had believed they had buildings cover and had bought their contents policies in
good faith. As such, they should not be treated as if they had tried to cheat the company.

Another point the Communications Director makes is that after the media coverage, 550 customers
called the helpline in one day, trying to clarify cover and payout conditions on their own policies, and
indicating they are unlikely to renew if AZURE treats customers as has been reported.

The Marketing Director noted this is not unexpected, and said: ‘one satisfied customer tells three
others, one unhappy customer tells 11 – but that’s without using the mass media to tell their story. We
get most ‘customer satisfaction’ stories from people where we’ve actually resolved a problem, and
then they stay with us long beyond the 5 year period averaged across most customers.’

Both the Communications Director and the Marketing Director think it is best to pay out on the policies
and take action to recoup the costs from the builder.

You have spoken to the legal department yourself and they’ve advised you that the builder could be
pursued for negligence – but why not leave this to the householders? There is also some doubt that
the house builder could afford to pay, so the money may never be recouped. If you wanted to be
seen as a ‘favourite’ company, why not offer a small compensation – say Rs.10,000 – to each
policyholder but on the basis this was a gesture of goodwill, not an admission they hold valid policies.

Clearly, you face a difficult task in trying to please everyone, and you need to make some judgements
on how to balance the different suggestions that have been made i.e.

Option 1. Refuse to compensate customers, as there are grounds to argue the risk was insured
on the basis of inadequate information. You can also cite your duty to protect
shareholders’ funds.
Option 2. You could make a small payment per customer as a nominal gesture of goodwill,
while ensuring it was understood this is not admitting liability to pay.
Option 3. You could agree a statement to the media explaining that you are about to contact
each person affected to assure them their claims will be honoured.

What you need to do

Task 1

As acting CEO, you’ll be well accustomed to taking a view on what makes most overall commercial
sense for the company, based on top line information such as you have here.

Set out in Grid (A) your views on the advantages and disadvantages of each option.
IAI CT9 - Jan 2014

Grid (A)

Task 1: Should AZURE pay out on the policy?

Advantages:
Azure would be able to save money, which is around Rs 1.2 Cr
Shareholders fund will be protected

Disadvantages:
Option 1
This will decrease company’s goodwill as a general insurance company.
It may decrease company’s future cash flows as existing customer base are
worried and have indicated that they are unlikely to renew their policies.
It may decrease company’s share price in short and long term.

Advantages:
Company will not have full damage to goodwill as customers will not be fully
worried about their future claims, so it will not hamper companies’ existing
market.
Option 2 Disadvantages:
It will cost company around 5 lacs.
Company will face some decrease in goodwill as it is unlikely that limited
compensation will satisfy the 50 policyholders

Advantages:
Company will receive Media publicity as it says it will honour policyholder’s
claim.
Company’s goodwill will increase. Customers will have more faith in AZURE
Option 3 so customer’s base will increase.
Disadvantages:
Company will have to pay the amount which will impact current year’s
financial performance
IAI CT9 - Jan 2014

Task 2: Realigning Azure’s Objectives

You can see the company clearly needs to review its objectives, as they seem to be encouraging
company executives to pull in several different directions. When you’ve tackled the claims issue, look
at AZURE’s existing objectives and think about why these may create confusion.
As acting CEO, you should take the opportunity to review if these objectives are really cohesive, and
think how you might better manage to communicate to staff a set of financial, strategic and non-
financial objectives that are mutually supportive and can guide decisions.
1. Consider the extracts you have on AZURE’s objectives, strategic intent, mission, strategy and
tactics, as set out in Grid (B).
2. Identify if they contain any contradictory aims.
3. Come up with a new top line objective and think about what impact this might have on
the other levels – suggesting changes as appropriate by setting them out in Grid (B)
under ‘Comments’.

Extracts from AZURE’s Staff handbook

To put shareholders first, giving them the highest return on investment

available in the general insurance sector.
Objective For the next five years, create a year-on-year improvement in the margin
between insurance revenues and payouts.

To be the nation’s favourite financial services company.

Strategic Intent

To offer the widest range of products in general insurance.

To continuously innovate in our processes.
To make use of the most sophisticated technological aides in pursuit of our
Mission
profit objectives.
To conduct ourselves with integrity and win customer trust.

To proactively seek out low risk, high income customers.

Strategy

Information sharing to avoid fraudulent claims. Use data warehouse for

customer profiling on past claims made across insurance categories.
Increase number of claims investigators.
Tactics
Raise level of proof required for payouts and rigorous analysis prior to
claims payouts
IAI CT9 - Jan 2014

Grid (B)

Objective To put shareholders first, giving them the highest return on investment
available in the general insurance sector.
For the next five years, create a year-on-year improvement on the margin
between insurance revenues and payouts.
Comments:
The objective is talking only about good returns to shareholders not about
customers. The customer satisfaction should also be integrated in company’s
objective. The highest return on investment without happy customers is not
possible, so company should try to bring value for both customers and
shareholders and manage the balance between the two

New Top Line Objective:

To gain high customer satisfaction level, keeping the balance between the
return on investment for shareholders and customer satisfaction.
For the next five years, create a year-on-year improvement on the margin
between insurance revenues and payouts with increased customer trust.

Strategic To be the nation’s favourite financial services company.

Intent Comments:
The Intent and objectives seems contradictory, as nation’s favourite financial
company Azure would be obligated to payout customer claimed money most of
the time, while this is opposite to the objectives because shareholders will get
less Return on Investment and the margin between insurance revenues and
payouts will be low.

The new objective complements this strategic Intent. With being nation’s
favourite financial services company, it should also try to bring in more
efficiency in its system which will benefit both customers and the company.

Mission To offer the widest range of products in general insurance.

To continuously innovate in our processes.
To make use of the most sophisticated technological aides in pursuit of our
profit objectives.
To conduct ourselves with integrity and win customer trust.

Comments:
Widest range of products is not matching with objective of the highest ROI.
Company should first make itself master in some products and then gradually
try to wide its range of products. Integrity is very important for any financial
company, so company should keep it in the mission and try to build integrity as
a culture within the company.

With new objective Integrity and Win customer’s trust goes very well.
Continuous innovation with technological advancements may also be an
advantage in winning customer satisfaction.
Strategy To proactively seek out low risk, high income customers.
Comments:
IAI CT9 - Jan 2014

This strategy can decrease the customer base. Company should integrate
better risk management strategies. Proper background check and documents
checking should be done before providing insurance so that there is very less
chance of any fraud. Customers must be aware about companies’ policy of not
paying any amount in case of fraud.

With new objective company should develop a culture in company to maintain

a healthy relationship with customers so that company has to face less fraud
cases and genuine customers can easily approach company to get their claims
without many hassles.

Tactics Information sharing to avoid fraudulent claims. Use data warehouse for
customer profiling on past claims made across insurance categories.
Increase number of claims investigators.
Raise level of proof required for payouts and rigorous analysis prior to claims
payouts
Comments:
Information sharing can be a very good way to avoid fraudulent claims.
Increased number of investigators can decrease customer trust, instead of this
company should look at making a robust risk management system in company
by sharing data, maintaining a good database, doing investigation before
issuing the policy.

With new objective company should try to reduce burdens of customers,

internally company should develop robust processes to reduce risk.

Exercise 4
IAI CT9 - Jan 2014

Problem solving
Having studied the tutorials on the i-coach website that relate to problem-solving (see i-coach -
Introduction - Problem-solving, including the 'Explore' items), read the problem solving exercises
below and solve any 1.

Problem 1

Your 30th birthday falls due in 6 months. What celebration should you plan?

Problem 2

An insurance company is considering entering the annuity market. It plans to launch a variety of
products simultaneously like an immediate annuity product, a deferred annuity, and a joint life annuity.

What factors must the company consider to achieve a successful launch of its offering?

Problem 3

You are a consultant to a company that owns a chain of coffee shops in a large city, Coffeeville. You
have been asked to advice on whether the company should open a new shop in the neighbouring
town of Teatown.

What aspects would you cover in your report?

Problem 4

You work for a company that sells car insurance. The market is very competitive, there are many
providers in the market, and premiums are being driven down. Your own market share has been
reducing as follows:

Year Market share (%) Premium income (£m)

One year ago 20 190

Two years ago 25 200

Three years ago 30 220

Should your company advertise through television for the next year costing £1m per month?
IAI CT9 - Jan 2014

Problem solving proforma

Which problem have you chosen? Problem no 3

Go through the five stages described below, entering items in each of the tables.

STAGE 1: Generate a list of 25 issues/questions (divergent thinking) against the bullet

points below

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IAI CT9 - Jan 2014

STAGE 2: Identify about 5 key themes within these questions and enter them against the
bullet points below

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IAI CT9 - Jan 2014

STAGE 3: Arrange against the bullet, sub-bullet, and sub-sub-bullet points below, your
issues/questions from Stage 1 into top level questions and sub-questions based on your
themes in Stage 2

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o
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o
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o
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o
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o
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o
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o
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o
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IAI CT9 - Jan 2014

STAGE 4: Refine your wording in Stage 3 to ensure no gaps and no overlaps (so mutually
exclusive, completely exhaustive). Suggest copy your points from Stage 3 into the table
below and then refine your wording


o
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o
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o
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o
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o
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o
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o
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IAI CT9 - Jan 2014

STAGE 5: Identify the dominating questions and the key hypotheses (no more than 3 of
each) and enter them against the bullet points below

Dominating questions
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Key hypotheses
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IAI CT9 - Jan 2014

Exercise 5

Case studies
Having studied the professionalism slides and notes, you are required to consider three case studies
in accordance with the table below according to the month of your birthday. The case studies are on
the following pages.

The month of your Your case studies

birthday

January Case studies 1, 3 and 4

February Case studies 2, 4 and 5

March Case studies 3, 5 and 6

IAI CT9 - Jan 2014

April Case studies 1, 4 and 6

May Case studies 1, 2 and 5

June Case studies 2, 3 and 6

July Case studies 3, 4 and 6

August Case studies 3, 4 and 5

IAI CT9 - Jan 2014

September Case studies 2, 4 and 5

October Case studies 1, 3 and 6

November Case studies 1, 2 and 5

December Case studies 1, 2 and 6

IAI CT9 - Jan 2014

1,2,5

I have completed case study numbers:

IAI CT9 - Jan 2014

Exercise 5: Case study 1 – Offer of gifts

Discuss the action you should take in response to the offer of one of the following from someone with
whom (directly or indirectly) you have a professional relationship.

(a) An initialled pocket diary.

(b) An invitation to a dinner party.
(c) Company products to the value of Rs 1000.
(d) An expensive suit piece at Diwali.
(e) A day at a major sports event, in the VIP box
(f) Invitation to dinner for your spouse and self.
(g) An all expenses paid Holiday in Goa for one week.

Consider separately the position of:

(i) An actuary employed by an Audit firm (the offer comes from the CEO of an Insurance company,
whose annual peer review is done by you).

(ii) An actuary employed by an insurance company (the offer comes from a reinsurer who wants to
do business with you).

(iii) A consulting actuary.

Case study 1 proforma

Enter the 2 most important points you can think of for each of the gifts (a) to (g) relative to any of the
positions (i) to (iii), indicating in each case which position you have used.

Gift Point Your view

(a) 1 Initialled pocket diary is a nominal amount, so it can be accepted

IAI CT9 - Jan 2014

2 Pocket diary can be accepted in all of the three conditions.

(b) 1 The level of hotel where the dinner party is arranged should be
checked, any party which would be very costly should be avoided
in positions (i) & (ii).

2 If it is expensive, as a consultant position (iii) it can be a accepted

if it is not provided by competitors of present clients but in
Position(i) and Position (ii), it should not be accepted.

(c) 1 Rs1000 can be accepted as company products in Position(iii) only

not in Position(i) and (ii)

2 Personal present would probably be unacceptable.

IAI CT9 - Jan 2014

(d) 1 Expensive suit piece should not be taken in position (i) and
position (ii)

2 In Position (iii) it can be accepted, if it is not provided by any

competitor of present clients.

(e) 1 It can be suspected in Position (i) & Position (ii)

2 In Position (iii) it can be accepted, if it is not provided by the

competitor

(f) 1 The level of hotel where the dinner party is arranged should be
checked, any party which would be very costly should be avoided
in Position (i) & (ii).
IAI CT9 - Jan 2014

2 As a consultant actuary (Position (iii)) it can be accepted if it is not

provided by competitors of present clients but in Position (i) and
Position (ii), it should not be accepted.

(g) 1 As a consultant, it can be accepted if it is not provided by

competitors of present clients but in Position (i) and position (ii), it
should not be accepted.

2 Any gift accepted / offered with high monetary value should be

informed to HR of company so consultant should inform his HR
department.
IAI CT9 - Jan 2014

Exercise 5: Case study 2 - Privileged information

After a lively evening at an event organised by the Institute of Actuaries of India, following a sessional
meeting, you recall participating in interesting discussions on the following topics:

1. Mortality investigations.
2. Duties carried out by actuaries in your organisation.
3. Calculation of reserves on unit-linked policies.
4. General salary levels of actuaries in your organisation.
5. Current product development being undertaken.
6. Detailed bases of investment guarantee valuations you carry out.
7. Premium revisions to take into account higher commission rates and the taxation changes.

You learnt a great deal from these discussions which will benefit you (and your company). However,
you did notice that the voluble consulting actuary and the friendly reassurer prefaced all their remarks
and information with the phrase “one of my clients” or “I know of a company that” respectively, so that
it was never clear which company they were talking about. By contrast, every experience you related
inevitably referred to your own company.

How do you decide in discussions with other actuaries which subjects are professional and therefore
can be discussed openly and which are commercial and therefore secret? Please illustrate with
reference to the above list of topics.

Case study 2 proforma

Enter the 2 most important points you can think of for each of the 7 topics in answer to the question
posed by the case study.

Topic Point Your view

1 1 The mortality experience our company has had with regards to a

particular category of product/s should never be disclosed.
However, it is safe to discuss about the general trends observed
over the years at an organization or industry level
IAI CT9 - Jan 2014

2 Advanced health facilities and improvement in standard of living

have played vital role in reduction of mortality rate and it can be
discussed in debate publically.

2 1 Actuary involves in wide range of work like analyzing insurance

rates, estimating reserves etc. The involvement of an actuary in
general in these roles can be discussed at-large and without
disclosing the basics of an individual actuary’s responsibilities.

2 However, the specific nature of an individual’s roles and

responsibilities should not be discussed. This may allow the
audience to know who is doing what and thereby lead to
compromising his/her position.

3 1 It is fine to discuss the logic used for reserving of unit-linked

policies.

2 Do not discuss on how and what sources company uses to

calculate it
IAI CT9 - Jan 2014

4 1 Discussing general salary levels and market trends would be

considered acceptable.

2 However, discussing the salary structure of a specific individual

would not perceive as acceptabl

5 1 The new product development is a sensitive topic to be discussed

as the company could loose its edge over their competitors. Do
not discuss.

2 It will also allow competition to know about your product and thus
they can come out with similar products

6 1 Talking about the returns offered by a particular sector/industry

and the anticipated yield curve movements would be acceptable.
IAI CT9 - Jan 2014

2 However, disclosing the investment pattern in terms of specific

details about sector allocation or allocation of individual stocks
would not be considered appropriate.

7 1 Changes in the taxation policies which affect the industry and all
the companies are at par. The calculation of premium would
generally be a direct percentage of the tax deducted so in that
regard it can be publicly discussed.

2 Commission rates policies differ from company to company only

depends on company relationship with their agents. So, it should
not be discussed directly unless an approval has been taken
IAI CT9 - Jan 2014

Exercise 5: Case study 3 - Errors

An error is discovered in your work/another actuary's. What action do you take?

Case study 3 proforma

Enter the 5 most important points you can think of in answer to the question posed by the case study.

4
IAI CT9 - Jan 2014

5
IAI CT9 - Jan 2014

Exercise 5: Case study 4 - A friend of a friend

A friend’s father feels he will be worse off by the buyout of a minority (but significant) stake of his
insurer by another party. Your friend believes that you know something about how insurance
companies work and asks you to find out something for her father. What should you do?

Case study 4 proforma

Enter the 5 most important points you can think of in answer to the question posed by the case study.

3
IAI CT9 - Jan 2014

5
IAI CT9 - Jan 2014

Exercise 5: Case study 5 - Can’t sign / won’t sign

You are a senior experienced student providing reports for review by a qualified but less experienced
actuary. The less experienced actuary refuses to provide official sign off for your work. What should
you do?

Case study 5 proforma

Enter the 5 most important points you can think of in answer to the question posed by the case study.

1
First and the most important thing are to ask and understand why he refuges to sign.
If the qualifies actuary has a valid point of view, then get his/her feedback and
incorporate the changes suggested by the actuary.

2
Provide all the supporting documents, explain him and make him understand the
report.

3
If he is not convinced then provide him the basis, details and facts of the report,
recheck all your calculations and the report to give a comfort to the signing actuary
IAI CT9 - Jan 2014

4 Provide any previous reports that you may have on the same subject/matter which
can verify the workings.

5 If actuary is still not comfortable in signing the report then we can request seniors or
other actuaries to get a second opinion on the report.
IAI CT9 - Jan 2014

Exercise 5: Case study 6 - Working late

Joyeeta is Head of Marketing at the Householders Insurance co. Ltd. She enjoys her work, especially
working with her team who are lively, loyal and committed. The company is planning to launch a new
internet based motor insurance policy and her team is in charge of the marketing strategy across the
country. The Director of Corporate Communications has let it be known to Joyeeta that there is a lot
riding on the success of the new product, both the future of the company and her own position.

Despite this added pressure, the team has enjoyed putting together the marketing strategy, and
Joyeeta can honestly say they have all given 110%. Often they would stay late, order a take-away,
and brain storm until the early hours.

Launch week approaches, and several of the print adverts have not been approved by the Board. It’s
going to be a long night if Joyeeta and her team are going to make the changes needed and meet the
deadline for the key publications. If they miss them, the campaign loses an integral part of its focus.

The team groans when Joyeeta breaks the news to them, but on the whole they are good-natured
about it.

However, Sugandha, Joyeeta’s second-in-command, pulls her to one side.

“I’m sorry, Joyeeta,” she says,” I really can’t stay late tonight. It’s my son’s final exam and I need to
make sure he studies.”

Joyeeta tells her not to worry. She’s sure they’ll be able to get through without her. But then Baldev
asks her for a word in private.

“I’m afraid I can’t stay late tonight,” he says.

“Oh Baldev!” groans Joyeeta, “Please! We need you! Especially since Sugandha isn’t able to make it.
With two people down we’d never make the deadline! Please stay! I promise not to ask you again!”

Baldev reluctantly agrees.

Later, Aditya comes up to Joyeeta. “I couldn’t help overhearing your conversation with Baldev,” he
says. “I don’t know if you’re aware, but his wife’s in hospital and she’s being operated on this
evening.”
What are Joyeeta’s options?
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Case study 6 proforma

Enter the 5 most important points you can think of in answer to the question posed by the case study.

4
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Exercise 6

Business game proforma

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Describe briefly in the table 10 business related points you have learnt, or increased your knowledge
of, as a result of participating in the business game.

1 Understood the importance of working as a team. Brainstorming on every team

members’ view points and over all business areas.

2 Learned what needs to be considered when setting up a business, including the

critical issues that affect the overall business.

3 Business Segmentation: To be able to segment business sectors and to be able

to deduce the most profitable segment for our business is a very important task
which shapes the future of the business.

4 With changing needs of the customer and more competitors and substitutes,
company must try new and diversified staff to keep up their game and to
manage prices in the market while providing the best product to satisfy customer
needs.
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5 How to make difficult and complex decisions. As most of the times the decision
taken may not directly relates to the milestone or the goal in mind yet it
somehow ease the process or help in advancing to another decision that may
be very important for the company.

6 It requires different skill sets to be able to achieve the goals we set in the
business, leadership skills, the way boost the morale of the co workers,
management and using different quality tools to help secure the goals of the
company.

7 With changing needs of the customer and more competitors and substitutes,
company must try new and diversified staff to keep up their game and to
manage prices in the market while providing the best product to satisfy customer
needs.

8 Learnt how to priorities issues or manage time when making business decisions.

9 It improves application of total quality principles.

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10 Overall added knowledge of how a business can be maintained and the

importance of futuristic thinking.
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Exercise 7
Legal awareness case study proforma
You will need to work through the tutorials of Legal (trust, tort, contract & company) to complete the legal
awareness case study proforma.

Select a minimum of 5 of the 10 questions below and, enter a total of 10 key points in answer to the
questions posed with a maximum of 3 points for any particular question.

Charlesworth

You are an actuary employed by Charlesworth Consultants LLP, a firm of actuaries. Charlesworth has
just been instructed by the Balmoral Group Limited (“Balmoral”) to advice on a number of issues.

1. Please identify any potential liability to which you or your firm may be exposed in acting for
your clients (that is, who could bring an action against you and on what grounds?)

Point Your view

1 May be liable to indemnify the clients for any losses incurred as a result of any
recommendations given.

2 May be liable to pay compensation as per the terms of agreement. e.g. error
in actuarial report.

3 The claimant can approach the court that might require a lot of legal
expenses, time and can cause substantial harm to the reputation.

2. How might Charlesworth seek to limit any potential liability?

Point Your view

1 It can take out a professional liability Insurance policy. That way, it can protect
itself from bearing the full cost of defending against a negligence claim made by
a client.
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2 By bringing internal controls within the organisation and processes. Like checks
before giving the final report.

3 Since, it is an LLP firm, that implies that the liability of partners is limited.

3. What restrictions are there on Charlesworth’s ability to limit its liability?

Point Your view

1 There can be exclusion clauses in the Insurance policy.

2 The exemption clauses have to be reasonable. It may be that, if the insurer

thinks the claim is due to moral hazard, it will not pay the claim.

Contract
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4. You have a first meeting with a client. At what point might you enter into a contract with the
client?

5. You are at a party and in response to a request, promised to provide professional advice to
someone for a fee. Do you have a contract?

6. You agree to do work for someone free of charge. You then decline to do the work. Can the
other party sue you?

Point Your view

1 4. There must be an agreement, both parties must agree to provide

consideration, there must be intention to create legal relations and the client
gives acceptance to the agreement giving consent to the terms and conditions
specified in the agreement.

2 6… ... The other party can’t sue as there is no consideration.

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Tort

Six months ago, Charlesworth prepared an actuarial valuation report for Daltech Ltd in respect of its
defined benefit pension scheme. Charlesworth was negligent in preparing the report with the result
that the deficit on the scheme was significantly undervalued.

Last week, a director of Daltech asked Charlesworth for a copy of the report “for a corporate matter.”
The report was handed over. Apparently,, Daltech handed the report to Secco Ltd who used it to base
a valuation to purchase the entire issued share capital of Daltech.

7. Does Charlesworth owe Secco a duty of care?

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Point Your view

3
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Company law and trusts

Focal is having cash flow problems. Last week Focal sold land it owned to George Whale (“GW”), a
director and shareholder of Focal. The book value of the land was £200,000. The board agreed to sell
the land to GW for £120,000 for a quick sale.

The board of Focal have discovered that James Kear, a director who resigned six months ago has set
up his own business competing with Focal and is obtaining business from Focal’s customers

8. Do the directors of Focal face any potential liabilities if they continue to trade in the present
circumstances?

Point Your view

2
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9. Is the sale of the land to George Whale open to challenge?

Point Your view

1 The sale is also open to challenge by any third party whose interests have
been violated through this sale and who has a legal right in the property sold.

2 The sale is open to challenge by the employees of the company if they feel
that the act of their bosses/ board was not done in good faith.
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10. Is there anything the directors of Focal can do about the activities of James Kear?

Point Your view

2
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