Technical provisions act as a defense wall to insurance companies against the materialization of risk probabilities. These calculations depend on model forecasts uncertainty and risk-related events that are probable to occur in the near future and help firms plan their premiums and insurance terms.
This calculation should be prepared by a registered actuary expert with the Insurance Regulatory Unit in the State of Kuwait.
What is an actuarial service?
Actuarial service is one way that corporations determine, assess, and plan for the financial impact of risk. Actuaries use mathematical and statistical models to evaluate risk in the insurance and finance industries.
The actuarial services assist in predicting the rate of morbidity, mortality, disability, survivorship, and other factors. The actuarial models provide estimates on the lifespan of an insurance applicant, and the probability of a weather-related event to create property-related claims.
What are the technical provisions in the insurance industry?
Technical provisions are the provision for outstanding claims liabilities is the most significant item in most general insurance companies’ balance sheets, and movements in the provision from year to year can often form a significant part of the insurer’s profit.
Technical provisions include the following:
- Provisions related to Incurred but not reported (IBNR)
- Provisions related to outstanding claims.
- Provisions related to unearned premium.
The above types of provisions are calculated for both lives as well as general insurance activities.
Why actuarial service is mandated in the insurance industry?
Actuarial services are mandated for insurance companies to:
- Assess the risk associated with any new product for pricing strategy
- Estimate the technical provisions that required to be booked in the financial statements to reflect liabilities in a fair position and mitigate risks associated with any future compensation
Is actuarial consulting mandated in Kuwait?
In the State of Kuwait, the Law No. (125) of 2019 regarding the Regulation of Insurance, and it’s Executive Regulations, it is mandated for all insurance companies operating in the State of Kuwait to appoint actuarial experts for the following activities:
Companies subject to the mandates
|All insurance companies||Executive Regulations of the Law No. (125) of 2019 – Article 155||Review report on the outstanding liabilities and technical provisions||Annually|
|Companies that offer life insurance||Executive Regulations of the Law No. (125) of 2019 – Article 161||Overall actuarial compliance assessment||Once every three years|
Moreover, Law No. (125) of 2019 requiring insurance companies operating in the State of Kuwait to engage an actuary for all types of insurance.
The Resolution is intended to protect insurance companies against failure risks through calculating the values of insurance products in a sound manner, making the appropriate provisions for insurance policies underwritten, and ensuring that the provisions are invested in low-risk financial instruments.
In this context, the Ministerial Resolution No. 215 of 2019 concerning the Regulation of Actuary Profession permits outsourcing the actuaries’ tasks to auditors who have experience in the insurance business or have agreements with a national or international firm with experience insurance business in accordance with the procedures prescribed under Article (42) of Insurance Law No. 24 of 1961, as amended.
However, it is not permissible to concurrently act as auditor and provide actuarial services to the same client. The actuary report shall be issued on a quarterly basis.
What are the governing standards to calculate technical provisions?
International Standards of Actuarial Practice (ISAPs) issued by International Actuarial Association, headquartered in Canada.
Shall re-insurance companies calculate technical provisions?
Yes, re-insurance companies have technical provisions related to re-insurance policies underwritten by them.
Are actuarial technical provisions calculations being applicable for both traditional and Islamic Takaful insurance companies?
Yes, actuarial technical provisions calculations are applicable for both traditional as well as Islamic Takaful insurance companies.
What is the added value to business entities from Actuarial Consulting?
- Obtain accurate estimates of the present values of products or services taking into consideration the future risks.
- Provide future indicators that help a business entity’s management carry out sound financial planning.
- Obtain recommendations concerning the investment of provisions in low-risk channels.
What are the services offered by Baker Tilly?
In this context, Baker Tilly provides the following actuarial consulting services:
- Provide outsourced actuary functions to insurance companies.
- Act as an actuarial expert to conduct an annual review.
- Act as an actuarial expert to conduct an overall assessment every three years.