Foreign hand
By Venkatachari Jagannathan | 29 Jun 2002
1
Chennai:
Hectic lobbying
is on by foreign actuarial companies, supported by their
governments and some domestic private life insurers, to promote
the cause of corporate actuaries actuaries to practice under
the corporate structure.
It
is believed that the Institute of Actuaries of India Bill was not
placed in the last session of the Indian Parliament due to this
lobbys influence. The Bill is modelled along the statutes
governing professions like chartered and cost accountancy and
company secretaries. The law permits actuarial practice only by
individuals and partnership firms. This is a structure favoured by
the ministry of finance.
As currently there is no legal prohibition against the corporate structure to render actuarial services, one finds a couple of private limited companies like Watson Wyatt Insurance Consultancy and Watson Wyatt India offering actuarial services, apart from consulting on insurance and human resource areas. Even Life Insurance Corporation of India is said to render actuarial services to its corporate clients.
When other professions expressly prohibit corporate entities with limited liability to practice, the debate among actuaries is interesting. The actuarial profession will be a trendsetter if the corporate structure is allowed. Members of the Actuarial Society of India (ASI) are divided on this issue.
Says
ASI president Nalin R Kapadia: "We have circulated a revised
professional code wherein the issue of corporate actuaries is also
included. Now it is for the professionals to decide."
Havoc in the offing?
Since the Institute of Actuaries of India Bill does not opt for corporate actuaries, companies like Watson Wyatt are really concerned. In April 2002, the foreign company took over the well-known Kolkata-based Indian actuarial firm MC Chakravarti and Company and merged it with Watson Wyatt India. As part of the deal, the doyen of the Indian actuarial profession, M C Chakravarti, was made company chairman.
Says Chakravarti: "In other parts of the world corporates are allowed to render actuarial services. The pending Bill here, if passed as it is, will cause havoc in the profession." He says the business areas that are unfolding for Indian actuaries are varied and the funds required will also be huge. "Individuals and partnerships cannot mobilise that kind of money."
Presently, Indian actuaries do the gratuity (mandated by the Income Tax Act) and leave encashment valuations for corporates, which allow employees to encash leave to their credit.
"The new areas of actuarial services unfolding in India now are those which are in vogue in major economies of the world, but they did not take shape here earlier for a variety of reasons. Not all of these are on account of opening of the insurance sector to private entities but surely are due to the globalisation of economies through the private sector," says former ASI president Liyaquat Khan.
Actuarial services are required as a backup support for audit of insurance companies, in investment and asset management firms and even in brokerage both of capital markets and insurance, he says.
Khan believes insurance companies can give actuarial advice through employed actuaries for corporate clients in the areas of employee benefits. Management and accounting consulting can offer actuarial advice in case of mergers, acquisitions and restructuring, which involves issues related to employee benefits and liabilities.
"If the corporate structure were not allowed the immediate adversarial impact would also be on LIC, which has a substantive portfolio of group businesses and does provide actuarial certificates to its clients in one way or the other. This would then become illegal. New life insurers would also be handicapped right from beginning," says Khan.
The management and accounting consultancies such as KPMG, Ernst and Young, PricewaterhouseCoopers for example, which have actuarial divisions in other countries, will not be able to establish such practices in India, he says.
Sourcing capital is best organised under a corporate structure, says Khan. "The employees of such a corporate body are better of, besides such an entity can expand so as to provide actuarial services to clients outside India, thus having a catalytic effect on the expanding Indian actuarial profession.
Global presence
Corporate actuaries exist in countries like the UK, the US and other countries. Watson Wyatt, Tillinghast Towers Perrin, William M Mercer and Milliman are some of them.
The UK Institutes membership directory lists actuarial outfits and also classifies by type: a) partnership of actuaries or sole practitioner; b) part-time sole practitioner; c) corporate body wholly owned by actuaries; and d) corporate body or other organisation with directors or employers who are actuaries. They also act as appointed actuaries the top actuarial position in an insurance company," says K S Gopalakrishnan, an actuary.
Opposing the corporate structure ASI president Kapadia says: "The corporatisation of actuarial services will benefit only the foreign companies and not domestic firms. There are around 50 practicing firms and already foreign companies have approached many for takeover. Ours is a small profession trying to establish roots. Allowing foreign corporate actuaries will affect the growth of the Indian actuaries."
For Kapadia and his ilk in ASI, it is like surya namaskaram after becoming blind. For, they had argued in favour of foreign actuaries to be employed as appointed actuaries in Indian life insurance companies. Today India has private life insurers employing or consulting Chinese and Pakistani actuaries.
Khan begs to disagree: "The current practice of Indian actuaries either individually or as partnership firms will not be adversely affected because they can get organised around a corporate entity."
In concurrence, Gopalakrishnan says: "The nature of the actuarial work is different as it involves looking into the future and hence is more complex. One needs to buy sophisticated software to look into the future and arrive at a scientific conclusion. Allowing corporatised actuarial consultancy firms will professionalise the current consultancy work, provide opportunities for students to gain experience in retirement benefit areas and develop the profession as well as the retirement benefit schemes in India."
Watson Wyatt, after taking over Chakravarti and Company, has recruited more actuaries and has sent them to the UK for training. Such opportunities were not there earlier, he reasons.
Issues involved
But will not the corporate set-up limit the liability of actuaries who certify corporate statements? The main reason for not allowing corporate structure in other professions legal, audit and company secretaryship is to keep the liability of the professionals unlimited so that they are doubly careful while certifying their client statements or books of accounts.
Khan counters: "Across all the major jurisdictions in the world actuaries provide actuarial advice in response to requirements of law, regulations and accounting standards. Such actuarial advice is regulated by the profession by its professional code of conduct and practice standards in relation to such an actuary as a member of that profession."
The actuarial profession regulates the member, and not the members firm or employer. As a result the accountability for professional advice squarely falls on the individual actuaries and not on the organisation with which he is associated either as a proprietor, partner, employee or director.
"When that is the case will ASI, currently a small body, govern the professionals impartially," asks former ASI president R Ramakrishnan, a member of the Malhotra Committee on Insurance Reforms. Professional bodies, whether it is the Institute of Chartered Accountants of India, the Medical Council of India or the Bar Council, are not known to take stern action against its delinquent members.
Further, if one goes by the twists and turns seen at ASIs executive committee in the recent past, Ramakrishnan presents a valid point. In 2001, Khan was voted out of the ASI presidents post by a coterie. Subsequently, quite a few young actuaries resigned from the executive committee, resulting in gerontocracy at the helm.
Says Ramakrishnan: "Delinquent actuaries will always try to hide under the veil of the corporate set-up. And piercing that veil to fix the liability will be difficult."
So, will unlimited corporate actuarial companies as in the UK not limiting the liability of its members and shareholders to the capital and assets of the company be a viable option?
"It is not a question of an unlimited company being a corporate actuary. Firms of any legal structure can, and should, take actuarial consultancy services, but signing off responsibility should be that of the individual actuary working with such a legal entity," says Khan.
"But why do you always want to experiment with a profession that is still in its infancy? We have very mature professions like law and accountancy with thousands of members and practicing professionals. It is better to do the tinkering there," Ramakrishnan retorts. "Should we make way for WorldComs, Enrons and Andersons in the Indian insurance sector?"
And the debate continues.
It
is believed that the Institute of Actuaries of India Bill was not
placed in the last session of the Indian Parliament due to this
lobbys influence. The Bill is modelled along the statutes
governing professions like chartered and cost accountancy and
company secretaries. The law permits actuarial practice only by
individuals and partnership firms. This is a structure favoured by
the ministry of finance.As currently there is no legal prohibition against the corporate structure to render actuarial services, one finds a couple of private limited companies like Watson Wyatt Insurance Consultancy and Watson Wyatt India offering actuarial services, apart from consulting on insurance and human resource areas. Even Life Insurance Corporation of India is said to render actuarial services to its corporate clients.
When other professions expressly prohibit corporate entities with limited liability to practice, the debate among actuaries is interesting. The actuarial profession will be a trendsetter if the corporate structure is allowed. Members of the Actuarial Society of India (ASI) are divided on this issue.
Says
ASI president Nalin R Kapadia: "We have circulated a revised
professional code wherein the issue of corporate actuaries is also
included. Now it is for the professionals to decide."Havoc in the offing?
Since the Institute of Actuaries of India Bill does not opt for corporate actuaries, companies like Watson Wyatt are really concerned. In April 2002, the foreign company took over the well-known Kolkata-based Indian actuarial firm MC Chakravarti and Company and merged it with Watson Wyatt India. As part of the deal, the doyen of the Indian actuarial profession, M C Chakravarti, was made company chairman.
Says Chakravarti: "In other parts of the world corporates are allowed to render actuarial services. The pending Bill here, if passed as it is, will cause havoc in the profession." He says the business areas that are unfolding for Indian actuaries are varied and the funds required will also be huge. "Individuals and partnerships cannot mobilise that kind of money."
Presently, Indian actuaries do the gratuity (mandated by the Income Tax Act) and leave encashment valuations for corporates, which allow employees to encash leave to their credit.
"The new areas of actuarial services unfolding in India now are those which are in vogue in major economies of the world, but they did not take shape here earlier for a variety of reasons. Not all of these are on account of opening of the insurance sector to private entities but surely are due to the globalisation of economies through the private sector," says former ASI president Liyaquat Khan.
Actuarial services are required as a backup support for audit of insurance companies, in investment and asset management firms and even in brokerage both of capital markets and insurance, he says.
Khan believes insurance companies can give actuarial advice through employed actuaries for corporate clients in the areas of employee benefits. Management and accounting consulting can offer actuarial advice in case of mergers, acquisitions and restructuring, which involves issues related to employee benefits and liabilities.
"If the corporate structure were not allowed the immediate adversarial impact would also be on LIC, which has a substantive portfolio of group businesses and does provide actuarial certificates to its clients in one way or the other. This would then become illegal. New life insurers would also be handicapped right from beginning," says Khan.
The management and accounting consultancies such as KPMG, Ernst and Young, PricewaterhouseCoopers for example, which have actuarial divisions in other countries, will not be able to establish such practices in India, he says.
Sourcing capital is best organised under a corporate structure, says Khan. "The employees of such a corporate body are better of, besides such an entity can expand so as to provide actuarial services to clients outside India, thus having a catalytic effect on the expanding Indian actuarial profession.
Global presence
Corporate actuaries exist in countries like the UK, the US and other countries. Watson Wyatt, Tillinghast Towers Perrin, William M Mercer and Milliman are some of them.
The UK Institutes membership directory lists actuarial outfits and also classifies by type: a) partnership of actuaries or sole practitioner; b) part-time sole practitioner; c) corporate body wholly owned by actuaries; and d) corporate body or other organisation with directors or employers who are actuaries. They also act as appointed actuaries the top actuarial position in an insurance company," says K S Gopalakrishnan, an actuary.
Opposing the corporate structure ASI president Kapadia says: "The corporatisation of actuarial services will benefit only the foreign companies and not domestic firms. There are around 50 practicing firms and already foreign companies have approached many for takeover. Ours is a small profession trying to establish roots. Allowing foreign corporate actuaries will affect the growth of the Indian actuaries."
For Kapadia and his ilk in ASI, it is like surya namaskaram after becoming blind. For, they had argued in favour of foreign actuaries to be employed as appointed actuaries in Indian life insurance companies. Today India has private life insurers employing or consulting Chinese and Pakistani actuaries.
Khan begs to disagree: "The current practice of Indian actuaries either individually or as partnership firms will not be adversely affected because they can get organised around a corporate entity."
In concurrence, Gopalakrishnan says: "The nature of the actuarial work is different as it involves looking into the future and hence is more complex. One needs to buy sophisticated software to look into the future and arrive at a scientific conclusion. Allowing corporatised actuarial consultancy firms will professionalise the current consultancy work, provide opportunities for students to gain experience in retirement benefit areas and develop the profession as well as the retirement benefit schemes in India."
Watson Wyatt, after taking over Chakravarti and Company, has recruited more actuaries and has sent them to the UK for training. Such opportunities were not there earlier, he reasons.
Issues involved
But will not the corporate set-up limit the liability of actuaries who certify corporate statements? The main reason for not allowing corporate structure in other professions legal, audit and company secretaryship is to keep the liability of the professionals unlimited so that they are doubly careful while certifying their client statements or books of accounts.
Khan counters: "Across all the major jurisdictions in the world actuaries provide actuarial advice in response to requirements of law, regulations and accounting standards. Such actuarial advice is regulated by the profession by its professional code of conduct and practice standards in relation to such an actuary as a member of that profession."
The actuarial profession regulates the member, and not the members firm or employer. As a result the accountability for professional advice squarely falls on the individual actuaries and not on the organisation with which he is associated either as a proprietor, partner, employee or director.
"When that is the case will ASI, currently a small body, govern the professionals impartially," asks former ASI president R Ramakrishnan, a member of the Malhotra Committee on Insurance Reforms. Professional bodies, whether it is the Institute of Chartered Accountants of India, the Medical Council of India or the Bar Council, are not known to take stern action against its delinquent members.
Further, if one goes by the twists and turns seen at ASIs executive committee in the recent past, Ramakrishnan presents a valid point. In 2001, Khan was voted out of the ASI presidents post by a coterie. Subsequently, quite a few young actuaries resigned from the executive committee, resulting in gerontocracy at the helm.
Says Ramakrishnan: "Delinquent actuaries will always try to hide under the veil of the corporate set-up. And piercing that veil to fix the liability will be difficult."
So, will unlimited corporate actuarial companies as in the UK not limiting the liability of its members and shareholders to the capital and assets of the company be a viable option?
"It is not a question of an unlimited company being a corporate actuary. Firms of any legal structure can, and should, take actuarial consultancy services, but signing off responsibility should be that of the individual actuary working with such a legal entity," says Khan.
"But why do you always want to experiment with a profession that is still in its infancy? We have very mature professions like law and accountancy with thousands of members and practicing professionals. It is better to do the tinkering there," Ramakrishnan retorts. "Should we make way for WorldComs, Enrons and Andersons in the Indian insurance sector?"
And the debate continues.