Life insurance companies have to make actuarial valuations. Actuarial valuation is the determination of potential liability for the future by applying statistical methods to economic and demographic realities.
There are currently only three accredited executives in the country. They are – M Shefak Ahmed, Chairman of the Board of Life Insurance Corporation. Sohrab Hossain and former managing director of Pragati Life Insurance Jafar Halim.
Actuarial Valuation is the life insurance company’s financial basis and liability assessment, risk management, product design, life fund, customer and shareholder profit and dividends. In the case of a life insurance company, the actuarial valuation is to be done before paying the shareholder’s dividend. With this valuation, the company can determine its business strength and weaknesses.
For example, a life insurance company offers life insurance benefits to 25,000 people of different ages, earning a premium of Tk 1 crore in 5 years. These 20,000 people will not die while they are under insurance. It cannot be said how many will die again. In this case, statistics and probability mathematics help the company determine a probable number of insurance claims that may arise in the future.
The actuary told him that unless a particular situation arises, such a percentage of the life fund will continue only after the company has allocated it to pay the insurance claim. Additional money can be distributed to shareholders in the form of dividends or to premium paying policyholders in the form of bonus.
Now the question is, what will the insurance company do if under certain circumstances the pressure to pay the insurance claim is higher than the statistical average? The answer comes from the idea of reinsurance. The concept of reinsurance should be clearly understood.