Case Study on Professionalism: Ram's Dilemma at Fatafat Life Insurance Company
Ram faces ethical challenges in his new role as Appointed Actuary at Fatafat Life Insurance Company. From accepting the position without proper due diligence to being coerced into unethical practices by the CEO, he finds himself in a dilemma regarding regulatory compliance and integrity. This case study explores the consequences of his decisions and offers insights into alternative courses of action.
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35th India Fellowship Webinar Date: 9th-10th, 16th-17th July, 2021 Professionalism Case Study 5 Guide : Anand Prakash Presented By : 1.Seema Mali 2.Tanvi Doshi 3. Umang Doshi 4. Prakhar Hirawat 1
Case Study Ram offered job at Fatafat Life Insurance Company for the post of AA. Rumours say the previous Appointed Actuary Mr. Hasrat has quit due to differences with the CEO, Mr Vetal. Ram accepts the offer and posts about his offer on Social Media where he receives many congratulatory messages, one of which was from his mentor that highlighted a PCS requirement that he needs to meet (Ram doesn t comply as required). Ram consults Disha, the CS of Fatafat who assures an NOC from the ex AA, Hasrat. Hasrat provides an NOC since he is promised stock options by the CEO (though not eligible). Without any further due diligence, Ram accepts the offer. 2 www.actuariesindia.org
Case Study The CEO appoints an independent Actuary to address Ram s concerns and gets him a clean report. Review of ARA, AAAR and FCR of the last 2 years by Ram doesn t flag any major concerns. Ram is given a free hand to build his team and attends his first board meeting wherein he is appreciated by the BOD. Board wants to have a private discussion with the CEO and Ram is asked to leave the meeting. Upon follow up, the CEO brushes it off, as a trivial matter which doesn t concern him. Out of hundreds of emails received by Ram relating to claims rejections, complaints, investment decisions etc., he reads only those that have been highlighted to him or pertains to the CEO or his team. 3 www.actuariesindia.org
Case Study Ram routinely signs advertisements, investments, complaints etc, without a proper understanding to avoid regulatory penalty due to delays. Many of these affairs were intimated in advance to him, though. Disturbing news emerge on Turant Power (a recent investment in a related party approved by Ram). Investment in Turant Power looks impaired, and ratings start getting downgraded. The CEO convinces Ram that it is the tough economic condition that is to be blamed and the situation will improve. Flagging this now will reduce the stakeholders confidence and eventually lead to bankruptcy. Ram is worried if the regulator detects this. CEO advises Ram to remain silent for a year or he will be declared as an accomplice and may face imprisonment. Ram is in a dilemma .What to do now?? 4 www.actuariesindia.org
Agenda Professionalism Issues Where did Ram go Wrong? What could he have done differently? Alternatives available What can be done now? Conclusion 5 www.actuariesindia.org
Agenda Professionalism Issues Where did Ram go Wrong? What could he have done differently? Alternatives available What should be done? Conclusion 6 www.actuariesindia.org
Professional Conduct Standards PCS gives guidance on professional conduct in addition to the Actuaries Act, 2006 and Rules & Regulations and Other Related Guidance. All members shall conform in both the spirit and the letter. Actuarial Practice Standards Objectives are to assist Appointed Actuaries in self-evaluating towards compliance and be of assistance to IAI to aid monitor compliance through Life Insurance Board. 7 www.actuariesindia.org
IRDAI Appointed Actuary Regulations, 2017 The Appointed Actuary Regulations, 2017 lays down the eligibility, powers, duties & obligations of the Appointed Actuary. Corporate Governance Guidelines,2016 Formulate a policy for related party transactions. The insurer should carry due diligence while making payments/ investments to group entities out of policyholders funds. The insurer has to disclose related party transactions in financial statements. The Insurer should keep in place group wide risk management framework. 8 www.actuariesindia.org
Professionalism Issues Discussion and clearance from the Predecessor (Hasrat) Ram to discuss the grounds of resignation with Hasrat, to summarize any conflicts that are associated with the appointment. If need arises, should approach the IAI or IRDAI for guidance. Professional Conduct Standards Section 7.2 If an actuary invited to give actuarial advice to a client, knows or has reason to suspect that another actuary is acting or has recently provided advice on the same or a related matter, the actuary should contact the other actuary at as early a stage as possible to ask whether, he is aware of any professional reasons to be considered in accepting the appointment or any particular considerations which ought to be borne in mind before giving advice 9 www.actuariesindia.org
Professionalism Issues Inability to understand PCS requirement Ram did not comprehend the significance of the PCS requirement (as advised by his mentor) Discussed with CS to gain comfort on his appointment. Professional Conduct Standards Section 1.3 A member who has any doubt about the interpretation of professional guidance or its application in particular circumstances should normally seek advice from an actuary who has relevant experience in the first instance. If this would be inappropriate or if, having consulted such an actuary, the member has residual doubts about the course of action to be taken, the member is advised to seek guidance from the professional body 10 www.actuariesindia.org
Professionalism Issues Past Reports Where there is smoke there is fire. Did Ram investigate the allegations/rumours against Fatafat? Were adequate historical reports reviewed to obtain reasonable assurance on the smooth functioning of Fatafat? Were unbiased reports sought from the Regulator? ARA, AAAR and FCR Is that all? Professional Conduct Standards Section 3.4 An actuary must consider the extent to which it is appropriate to carry out investigations to assess the accuracy and reasonableness of any data being used 11 www.actuariesindia.org
Professionalism Issues Powers of Appointed Actuary Ram has the right to attend all Board Meetings. Professional Conduct Standards Section 4.1 A material breach of the PCS or of a Guidance Note classified as Practice Standard or of the Act and Rules and Regulations made there under or Other Guidance, is of itself a ground for complaint under the disciplinary procedures and would amount to strong prima facie evidence of misconduct. Appointed Actuary Regulations, 2017 Section 8.C The Appointed Actuary shall be entitled to attend all meetings of the management including meeting of the directors of the insurer. 12 www.actuariesindia.org
Professionalism Issues Time Constraint Ram signed papers pertaining to routine matters without a second thought fearing that late submission will attract regulatory penalty. Professional Conduct Standards Section 2.3 If work which an actuary considers necessary is precluded by cost or time constraints the actuary should normally either decline to act or qualify the advice given. 13 www.actuariesindia.org
Professionalism Issues Signing of Investment in Turant Ram signed up an investment in Turant probably without thorough research and analysis. Professional Conduct Standards Section 3.2 Many assignments offered to actuaries require considerable knowledge and experience for proper completion. Requisite knowledge includes methodology, relevant legislation and, in respect of work outside India local conditions and any professional code of practice in the country concerned. Actuaries must not give advice, unless: a) satisfied of personal competence in the relevant matters, or b) acting in co-operation with, or with the guidance of, someone (not necessarily an actuary) with the requisite knowledge and experience. 14 www.actuariesindia.org
Agenda Professionalism Issues Where did Ram go Wrong? What could he have done differently? Alternatives available What should be done? Conclusion 15 www.actuariesindia.org
Where did Ram go Wrong? No further investigation in the rumour Ignored the rumour of Mr. Hasrat s resignation. Trusted the company and didn t investigate the matter further. What could he have done differently? As per Section 7C of Appointed Actuary Regulations, 2017, the Authority has to be intimated about the reason for cessation of the AA s post. Ram should have consulted the Authority. 16 www.actuariesindia.org
Where did Ram go Wrong? Sought advise from Company Secretary Consulted the Company Secretary for the PCS requirement. He trusted Disha and let her take care of it. What could he have done differently? As per Section 1.3 of the PCS, Ram should have sought advice from an Actuary with relevant experience. In case of further doubts, he should have sought guidance from the professional body. 17 www.actuariesindia.org
Where did Ram go Wrong? Nature of clearance by CS Did not investigate how the CS took care of the PCS requirement. Did not get the details from the CS and failed to check whether the clearance breached the PCS. What could he have done differently? As per Section 4 of the PCS, any breach in the PCS is considered a ground for complaint under disciplinary procedures. Ram should have investigated the nature of clearance in depth. 18 www.actuariesindia.org
Where did Ram go Wrong? Past Reports Referred past 2 years reports and concluded on no major issues and ignored minor ones. Did not discuss with the Independent Actuary on the clean report. What could he have done differently? As per Section 3.4 of the PCS, Ram should have considered the extent to which it was appropriate to carry out investigations to assess the accuracy and reasonableness of any data being used. As suggested by APS1, Ram should have discussed the necessary matters with the Independent Actuary. 19 www.actuariesindia.org
Where did Ram go Wrong? Failure to know Board Meeting discussions Left the board meeting upon request by Directors. Did not check the Board Meeting discussions in his absence. What could he have done differently? As per Section 8.C of Appointed Actuary Regulation, 2017, the Appointed Actuary is entitled to meetings of the directors of the insurer. He should have also checked the minutes of the meeting if any decision was taken post he left. 20 www.actuariesindia.org
Where did Ram go Wrong? Not giving sufficient attention to important matters Did not pay attention to emails received. Signed regulatory documents without appropriate review. What could he have done differently? As per Section 2.3 of PCS, Ram should have either asked for appropriate time to review them or declined to provide a sign-off on those papers. 21 www.actuariesindia.org
Where did Ram go Wrong? Investments of the company Investments for Turant Power signed off without self evaluation. What could he have done differently? Section 8.7 of APS1 states that the investment policy and the value placed on the investments is the responsibility of the BoD However, the AA must have regard to all aspects likely to affect the financial condition of the company particularly for the existing and continuing investment policy of the company (as per Section 5.5). 22 www.actuariesindia.org
Where did Ram go Wrong? Suspected Breach by Hasrat Doubted that Hasrat was aware of the poor investments of Fatafat. However, did not take any further action to investigate. What could he have done differently? As per Section 4.3 of the PCS, Ram should have investigated the matter, sought more information if he thought the breach is material and taken appropriate action. Should have first spoken to Hasrat and then to the professional body. 23 www.actuariesindia.org
Agenda Professionalism Issues Where did Ram go Wrong? What could he have done differently? Alternatives available What should be done? Conclusion 24 www.actuariesindia.org
Alternatives Available Continue as it is, negotiate to increase the salary Section 2.1 of the PCS states that The Actuarial Profession has an obligation to serve the public interest. Section 2.2 of the PCS states that A member has a duty to the profession and must not act in a manner, which denigrates its reputation or impugns its integrity. Section 6.3 of the PCS states Financial rewards which are large in relation to the professional time spent including success related or contingency fees, can threaten objectivity. Accordingly, actuaries are advised to exercise extreme care in determining whether to accept such rewards or fees and must ensure that they are appropriate in the circumstances of the advice given and that there is no conflict with the requirements for professional objectivity. 25 www.actuariesindia.org
Alternatives Available Continue as it is, negotiate to increase the salary Section 2 of APS 1 states that The responsibilities of an actuary who is appointed under the AA Regulations, are central to the financial soundness of the life insurance company to which he is so appointed. Section 3.6 of APS 1 states that where an actuary s financial interests lead to conflict of interest, the actuary should not continue in the position. Section 11 of AA Regulations 2017 states that The Appointed Actuary shall not function in any capacity which could result in conflict of interest in accordance with the Regulations. Various professional attributes at risk including Integrity, Compliance. 26 www.actuariesindia.org
Alternatives Available Resign and find a new job outside the country Breaches the Professional Conduct Standards. Section 2.1 of the PCS states that The Actuarial Profession has an obligation to serve the public interest. Individually members must maintain and observe the highest standards of conduct. The standing of the profession depends on the judgment of individual members. Section 7 of AA Regulations 2017 states that the insurer and the AA must inform the Authority the reasons for cessation of the post. Various professional attributes at risk including Speaking up/ Whistle Blowing. 27 www.actuariesindia.org
Alternatives Available Act now and let the regulator know Section 1.4 of the PCS states that The profession regulates individual members, not members firms. where a member becomes aware that the member s firm intends to act, or has already acted, in a way which would put the member (or any other member employed by the firm) in breach of professional guidance, the member must take appropriate preventative or corrective action. Section 2 of APS 1 states that An Appointed Actuary should ensure, so far as is within his/her authority, that the life insurance business of the company is conducted on sound financial lines and that he/she has regard to Policyholders Reasonable Expectations (PRE). Section 10.1 of APS 1 suggests the AA to apply rigorous standards if company s solvency is involved. 28 www.actuariesindia.org
Alternatives Available Act now and let the regulator know Section 10.2 of APS 1 suggests while fearing insolvency, the AA must advise the company how it must act and why. The AA must take appropriate action necessary, including that of communicating to IRDAI after due deliberation with the Board. Section 6 of APS 2 suggests that the AA should advise the Directors to ensure solvency requirements are met. Section 9.14 of AA Regulations 2017 states that the AA must inform the Authority in case of any breach by the insurer and failure by the management to take any action. 29 www.actuariesindia.org
Agenda Professionalism Issues Where did Ram go Wrong? What could he have done differently? Alternatives available What should be done? Conclusion 30 www.actuariesindia.org
What should be done? Conversation with Hasrat Speak to Hasrat to get more information on the issue and to check if he was aware of the wrong doings in the company. Explore whether the matter can be mitigated or rectified by taking remedial action. If Ram thinks Hasrat has committed a material breach of the professional guidance, Ram should refer the matter to the professional body. Communicate to the senior Management Speak up and inform the board about the risk of insolvency the company is facing. Suggest steps to correct the situation. 31 www.actuariesindia.org
What should be done? Inform the Authority Post consultation with the senior Management, should inform the Authority that the company is on the verge of bankruptcy and is not meeting the solvency requirements. Suggest further steps to the company in consultation with the Authority. Seek Advice Respecting confidentiality, take advice from an experienced member or the regulator. 32 www.actuariesindia.org
Agenda Professionalism Issues Where did Ram go Wrong? What could he have done differently? Alternatives available What should be done? Conclusion 33 www.actuariesindia.org
Conclusion Members should conform to the professional conduct standards in both the spirit and the letter and always maintain professional integrity. Members should speak up for their responsibilities and powers. Members should whistle blow against wrong doings when required if it is in the public interest. Members should seek guidance from experienced members and the professional body when required while respecting confidentiality. 34 www.actuariesindia.org
Questions Thank you 35
