Interview Questions
 What is term life insurance?
A term insurance provides death risk cover for a specified period. In case the life assured passes away during the policy period, the life insurance company pays the death benefit to the nominee. It is a pure risk cover plan that offers high coverage at low premiums.
 Explain about UnitLinked Plans.
A unit linked plan is a comprehensive combination of insurance and investment. The premium paid towards ULIP is partly used as a risk cover (insurance) and partly is invested in funds. One can invest in different funds offered by the insurance company depending on his risk appetite. The insurance company then invests the accumulated amount in the capital market i.e. in bonds, equities, debts, market funds, or a hybrid fund.
 What are endowment plans?
A certain amount is kept for life cover – insurance, while the rest is invested by the life insurance company. In an endowment plan, if the life assured outlives the policy term, the insurance company offers him the maturity benefit. Moreover, Endowment Plans may offer bonuses (called survival benefit) periodically, which are paid either on maturity or to the nominee under death claim. On death, the death benefit is payable to the nominee.
 What is Money Back Life Insurance Policy.
Money back plan is a unique type of life insurance policy, wherein a percentage of the sum assured is paid back to the insured on periodic intervals as survival benefit. Money back plans are also eligible to receive the bonuses declared by the company from time to time. This way, policyholders can meet shortterm financial goals.
 What are whole life insurance plans?
A whole life insurance policy covers the life assured for whole life, or in some cases, up to the age of 100 years. The sum assured or the coverage is decided at the time of policy purchase and is paid to the nominee at the time of death claim of the life assured along with bonuses if any.
 What are child plans?
Child plan helps to build corpus for child’s future growth. Child plans help to build funds for child’s education and marriage. Most of the child plan provides annual installments or one time payout after the age of 18 years. In case of an unfortunate event, the insured parent passes away during the policy term – immediate payment is payable by the insurance company. Some child plans waive off the future premiums on death of the life insured and the policy continues till maturity.
 Elaborate on retirement plans.
Retirement plan helps to build a corpus for retirement. Helps to live independently financially and without worries. Most of the retirement plans provide annual installments or one time payout after the age of 60 years. In case of an unfortunate event, life assured passes away during the policy term – immediate payment is payable to the nominee by the insurance company
 What is the select mortality table?
A select mortality table is a mortality table, a grid of numbers showing how long people of different demographics are expected to live, based only on those individuals who have recently purchased life insurance policies. These individuals tend to have lower mortality rates than individuals
 What is the ultimate mortality table?
An ultimate mortality table lists the percentage of life insurance purchasers expected to still be alive at each given age.Typically, the data is based on policyholders from a particular insurance company or group of them, rather than the entire population. Ultimate mortality tables exclude data from recently underwritten policies because their owners were probably required to pass a medical examInsurance companies consult ultimate mortality tables to price their products and determine whether to offer coverage to an applicant.
 What is DI and TPD?
The term disability income (DI) insurance refers to an insurance policy that provides income to individuals who can no longer work because of a disability. Disability income insurance helps protect people from financial losses if an accident or illness renders them incapable of working and receiving regular income.
TPD (Total and Permanent Disability) pays a lump sum if you become totally and permanently disabled because of illness or injury. Each insurer has a different definition of what it means to be totally and permanently disabled.
 What are life tables and what are its uses?
A life table is a table which shows, for each age, what the probability is that a person of that age will die before their next birthday.
Use of life table:
 Life table is used to project the future population on the basis of the present death rate.
 It helps in determining the average expectation of life based on age specific death rates.
 The method of constructing a life table can be followed to estimate the cause of specific death rates, male and female death rates, etc.
 What are participating Life Insurance Policies?
A participating policy enables you, as a policyholder, to share the profits of the insurance company. These profits are shared in the form of bonuses or dividends. It is also known as a withprofit policy.
 Principles of Life Insurance.
In the insurance world there are six basic principles that must be met, which are:
 Insurable Interest
 Utmost good faith
 Proximate cause
 Indemnity
 Subrogation
 Contribution
 What does the bonus represent?
The bonus represents the amount of surpluses determined under the WithProfits fund of the company which is allocated to ‘WithProfits’ policies.
 How does company distribute the surplus in a withprofits policy?
The surplus is distributed to the policyholders by way of bonus declaration at the end of each financial year. The policy gets a share of the surplus emerging from the With Profits business in the form of regular reversionary or terminal bonuses.
 What are the types of Bonuses?
The type of bonus may be simple reversionary, interim or terminal.
 How is reversionary bonus rate determined?
The rates are determined by looking at the actual experience of the WithProfits fund over the year. The most important factor is the amount of investment income earned. Other experience parameters e.g. mortality, expense etc. also contribute to the surplus and bonuses. Reversionary bonus rates are decided at levels which WithProfits fund can afford and which are likely to be relatively stable in the long term. While deciding bonus levels, it is taken into account what company expects to pay out for existing policies in the future based on the expected future experience. A major input for forming such an expectation is the future expected medium and long term returns on investments. The other factors are expense, mortality experience etc.
 How is a simple reversionary bonus declared?
The reversionary bonuses are declared as a percentage of the basic sum assured. For products where basic sum assured is increased with a certain percentage after specified period, the reversionary bonuses are declared as a percentage of the effective sum assured (i.e. increased sum assured). The reversionary bonuses are declared on annual basis for each policy year during the term of the product, provided the policy is inforce as on the date of bonus declaration (i.e. all due premiums have been paid).
 How is the interim bonus declared?
Interim bonuses are declared every year as a percentage of the basic sum assured or increased sum assured added to policies becoming claims before declaration of the next reversionary bonus.
 How is terminal bonus declared?
Terminal bonuses would normally be declared every year as a percentage of the total bonuses already attached to the policy. Terminal bonuses are declared for policies becoming claims during the year. They are paid in respect of the policy claims by death or maturity and may also apply to surrender.
 What are the differences between conventional and ULIP products?
Conventional and ULIP products can be differentiated on the basis of:
 Payout on maturity
 Transparency
 Partial Withdrawal
 Switching Options

 Advantages and disadvantages of ULIP.
Advantages of ULIP are:
 Long term investment: ULIPs are an excellent choice for people looking to invest for the long term. This is because shortterm market volatility produces lesser returns, but longterm market investments produce very attractive returns.
 Tax free returns: ULIPs provide taxfree and taxadvantaged returns. Additionally, the death benefits received from ULIPs are taxfree.
 Flexibility: ULIPs give investors the ability to switch between investment funds as their goals and needs change. Policyholders can profit from the fluctuation in stock values by switching between equity, debt, and cash.
Disadvantages of ULIP are:
 Expensive and Complex: Because ULIPs mix insurance and investing, the premiums charged for life insurance end up being much higher than term insurance.
 Higher Beginning costs: ULIPs are more expensive in the first few years due to charges levied on the investor that goes toward policy charges
 Market Fluctuations: In the early years, investors can expect lesser profits due to market changes. So, if you’re wanting to invest for the short term, ULIPs aren’t the best option.
 What are the benefits of ULIPs over mutual funds?
Mutual Funds  Unit Linked Products 
Only Investment, no life cover  Used for Investment as well as life cover 
No guarantee  Minimum guarantee offered 
Not necessary you get tax deductions  You get tax deductions on your income under 80 c act 
Charges – Only managing your money and exit fees  Plenty Charges – Allocation, Life cover 
 Explain the concept of unit fund and nonunit fund?
The unit fund is the amount held in units on behalf of the policyholder at any time.
The amount of money in the nonunit fund is the net result of the life offices (nonunit) cashflows.
These cashflows arise from the following sources:
 Premium less cost of allocation, ie the difference between the premium paid by the policyholder and the amount invested in the unit fund on the policyholders behalf
 Expenses incurred by the life office
 Interest earned/charged on the nonunit fund
 Management charges taken from the unit fund
 Extra death or maturity costs (if the benefit payable on death or maturity is greater than the value of the units held at the time of death or maturity)
 Profit on surrender (if the benefit payable on surrender is less than the value of the units held at the time of surrender).
 Under which scenario, retrospective and prospective reserves are equal?
If:
 the retrospective and prospective reserves are calculated on the same basis, and
 this basis is the same as the basis used to calculate the premiums used in the
reserve calculation,
then the retrospective reserve will be equal to the prospective reserve.
 Why is transfer of reserves a negative item in cash flow?
This is money that is currently ‘in the bank’ for a policy that is in force at this point. When we reach the end of the year, we need to account for the fact that the company is required to hold reserves for each policy that is then in force. The increase in reserve between the start and the end of the year represents additional money that the company will have to set aside (i.e. transfer) from other income, i.e. it will be a deduction from the profit earned during the year.
 What are the components of reserve?
The component of reserve include: premium (negative), expenses and commissions(positive) and claims/benefits payable (positive).
 What is the need to create reserves?
A reserve represents the amount of money that an insurer sets aside in respect of a policy that is currently in force, in order to meet future payments on that policy. It is important in real life, because an insurer that holds insufficient reserves will ultimately run out of money before all of its policyholders have made their claims, meaning that the company becomes insolvent and policyholders lose money, which can potentially be very large amounts.
 What do you understand about General Insurance?
Insurance contracts that do not come under the ambit of life insurance are called general insurance. The different forms of general insurance are fire, marine, motor, accident and other miscellaneous nonlife insurance. A General Insurance policy cover reimburses the insured for a financial loss caused due to certain events as stated in the respective general insurance policy.
 What do you know about motor insurance?
Vehicle insurance or motor insurance is a type of insurance policy which safeguards you financially in case your vehicle (car or twowheeler) sustains damages due to natural or manmade calamities such as earthquake, flood, lightning and theft among others.
 Elaborate on marine insurance
Marine insurance refers to a contract of indemnity. It is an assurance that the goods dispatched from the country of origin to the land of destination are insured. Marine insurance covers the loss/damage of ships, cargo, terminals, and includes any other means of transport by which goods are transferred, acquired, or held between the points of origin and the final destination.
 What is property and casualty insurance?
Property insurance and casualty insurance (also known as P&C insurance) are types of coverage that help protect you and the property you own. Property insurance helps cover stuff you own like your home or your car. Casualty insurance means that the policy includes liability coverage to help protect you if you’re found legally responsible for an accident that causes injuries to another person or damage to another person’s belongings. Property and casualty insurance are typically bundled together into one insurance policy.
 Explain DSAR
The death strain at risk for the current policy year is the amount of extra money that the company would need to pay if the policyholder died during that policy year. It is sometimes called the sum at risk.
 What is Profit Testing?
This is the process of projecting the income and outgo emerging from a policy, and discounting the results. The results can then be used for various different purposes, such as setting the premium for a life policy that will give us our required level of profitability.We can set the premiums for a product to give a desired level of profitability by projecting cashflows under a certain set of assumptions, deciding on a risk discount rate and profit criterion, and then varying the premium amount until the profit criterion is satisfied.
 Explain Runoff.
Run off triangles are a method used to model claims experience. They’re specifically used to estimate the future claims that will be reported based on those already reported. When a claim event occurs there will be some time before it is reported or notified to the insurer – this is known as a claim delay. The insurer will incur numerous claims in a calendar year, and each of those claims will have a claim delay. The run off triangles are used to estimate how much or how many claims have been incurred in a reporting period (e.g. financial year) but are not yet reported and a reserve is held for this. It’s called an IBNR – incurred but not reported reserve.
 Explain Bornheutter – Ferguson method.
The BornhuetterFerguson method combines the estimated loss ratio with a projection method.It therefore improves on the crude use of a loss ratio by taking account of the information provided by the latest development pattern of the claims, whilst the addition of the loss ratio to a projection method serves to add some stability against distortions in the development pattern. BornhuetterFerguson is one of the most widely used loss reserve valuation methods, second only to the chainladder method. It combines features of the chain ladder and expected loss ratio methods and assigns weights for the percentage of losses paid and losses incurred.
 What is GLM? How is GLM used in life or general insurance?
Generalised linear models (GLMs) relate the response variable which we want to predict, to the explanatory variables or factors (called predictors, covariates or independent variables) about which we have information.
They are used to:
a. determine which rating factors to use (rating factors are measurable or categorical factors that are used as proxies for risk in setting premiums, eg age or gender)
b. estimate an appropriate premium to charge for a particular policy given the level of risk present.
 What is the concept of Hypothesis?
A hypothesis is where we make a statement about something; for example the mean lifetime of smokers is less than that of nonsmokers. A hypothesis test is where we collect a representative sample and examine it to see if our hypothesis holds true. The standard approach to carrying out a statistical test involves the following steps:

 Specify the hypothesis to be tested
 Select a suitable statistical model
 Design and carry out an experiment/study
 Calculate a test statistic
 Calculate the probability value
 Determine the conclusion of the test.
 What is the meaning of pvalue?
A pvalue is a statistical measurement used to validate a hypothesis against observed data. A pvalue measures the probability of obtaining the observed results, assuming that the null hypothesis is true. The lower the pvalue, the greater the statistical significance of the observed difference.A p value is used in hypothesis testing to help you support or reject the null hypothesis. The p value is the evidence against a null hypothesis.
 What is immunisation?
It is a strategy that ensures that a change in interest rates will not affect the value of a portfolio.In simple cases, it is possible to select an asset portfolio that will protect this surplus against small changes in the interest rate.
 Reddington’s condition?
There are three conditions:
 The value of the assets at the starting rate of interest is equal to the value of the liabilities.
 The volatilities of the asset and liability cash flow series are equal
 The convexity of the asset cash flow series is greater than the convexity of the liability cash flow series.
 Concept of Project Appraisal.
Project appraisal is a cost and benefits analysis of different aspects of a proposed project with an objective to adjudge its viability. We consider the following methods to decide between the alternative investment projects which are:
 Net present value
 Accumulated Profit
 Internal Rate of return
 Payback Period
 Discounted Payback Period.
 What is the difference between Bonds and Equities?
a. Equities (also known as stocks) are shares issued by companies and traded on an exchange. On the other hand, Bonds (also known as fixed income) could be issued by companies or sovereigns and could be traded either publicly, over the counter or privately.
b.When buying equity in a company, the investor becomes a shareholder and can participate in the distribution of profits.When buying a bond, the investor becomes a creditor to the issuer and is entitled to a fixed interest along with the ultimate repayment of the principal
Typically, equities and bonds have a low correlation and when combined together in a portfolio can offer diversification benefits.
 Concept of term structure.
The variation by term of interest rates is often referred to as the term structure of interest Rates. The prevailing interest rates in investment markets usually vary depending on the time span of the investments to which they relate. This variation determines the term structure of interest rates. The variation arises because the interest rates that lenders expect to receive and borrowers are prepared to pay are influenced by the following factors, which are not normally constant over time:
 Supply and demand
 Base rates
 Interest rates in other countries
 Expected future inflation rates
 Tax rates
 Risk associated with changes in interest rates
 Explain Discounted Payback Period.
The discounted payback period for a project is the smallest time t for which the present (or accumulated) value of the income upto time t exceeds the present (or accumulated) value of the outgo upto time t. A discounted payback period gives the number of years it takes to break even from undertaking the initial expenditure, by discounting future cash flows and recognizing the time value of money.
 Explain internal rate of return?
The Internal rate of return for an investment project is the effective rate of interest that equates the present value of income and outgo,ie it makes the net present value of the cash flows equal to zero. The internal rate of return need not be positive. A zero return implies that the investor receives no return on the investment and if the yield is negative then the investor loses money on the investment. It is difficult, however, to find a practical interpretation for a yield less than 1, and so if there is not a solution to the equation greater than 1, the yield is undefined
 What is convexity and volatility?
Convexity demonstrates how the duration of a bond changes as interest rate changes. If a bond’s duration increases as yield’s increases, the bond is said to be negative convexity.
Volatility Effective duration is the sensitivity of a bond‘s price against the benchmark yield curve. One way to assess the risk of a bond is to estimate the percentage change in the price of a bond against a benchmark yield curve such as a government par curve.
 State the usefulness of Internal rate of return and Present value
Usefulness of Internal rate of return:
 The IRR provides any small business owner with a quick snapshot of what capital projects would provide the greatest potential cash flow.
 The IRR provides an easytounderstand average performance of variable cash flows over the life of an investment
 The IRR method does not require the hurdle rate, mitigating the risk of determining a wrong rate. Once the IRR is calculated, projects can be selected where the IRR exceeds the estimated cost of capital.
 Define NPV?
Net present value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows over a period of time.When comparing similar investments, a higher NPV is better than a lower one. When comparing investments of different amounts or over different periods, the size of the NPV is less important since NPV is expressed as a dollar amount and the more you invest or the longer, the higher the NPV is likely to be
 Usefulness of Net Present Value.
 The primary benefit of using NPV is that it considers the concept of the time value of money, i.e., a dollar today is worth more than a dollar tomorrow owing to its earning capacity. The computation under NPV considers the discounted net cash flows of an investment to determine its viability
 NPV method enables the decisionmaking process for companies. Not only does it help evaluate projects of the same size, but it also helps in identifying whether a particular investment is profitmaking or lossmaking.
 Disadvantages of Internal Rate of Return?
 A disadvantage of using the IRR method is that it does not account for the project size when comparing projects. Cash flows are simply compared to the amount of capital outlay generating those cash flows. This can be troublesome when two projects require a significantly different amount of capital outlay, but the smaller project returns a higher IRR.
 The IRR method only concerns itself with the projected cash flows generated by a capital injection and ignores the potential future costs that may affect profit
 Although the IRR allows you to calculate the value of future cash flows, it makes an implicit assumption that those cash flows can be reinvested at the same rate as the IRR. That assumption is not practical as the IRR is sometimes a very high number and opportunities that yield such a return are generally not available or significantly limited.
 How is Attrition rate calculated?
Commonly referred to as a ‘churn rate,’ a company’s attrition rate is the rate at which people leave. If you break it down, it is the number of people who have left the company, divided by the average number of employees over a period of time
Attrition rate = (No. of separations / Avg. No. of employees) x 100.
 Explain the concept of time value of money?
The time value of money (TVM) is the concept that a sum of money is worth more now than the same sum will be at a future date due to its earnings potential in the interim. This is a core principle of finance. A sum of money in the hand has greater value than the same sum to be paid in the future.
 State Central Limit Theorem.
The central limit theorem (CLT) states that the distribution of sample means approximates a normal distribution as the sample size gets larger, regardless of the population’s distribution. It provides the basis for largesample inference about a population mean when the population distribution is unknown and more importantly does not need to be known. It also provides the basis for largesample inference about a population proportion, for example, in initial mortality rates at given age x, or in opinion polls and surveys. It is one of the reasons for the importance of the normal distribution in statistics.
 Understanding of various types of distributions
Binomial distribution – Binomial distribution summarizes the number of trials, or observations when each trial has the same probability of attaining one particular value. The binomial distribution determines the probability of observing a specified number of successful outcomes in a specified number of trials.
Example – The simplest real life example of binomial distribution is the number of students that passed or failed in a college. Here the pass implies success and fail implies failure. Another example is the probability of winning a lottery ticket. Here the winning of reward implies success and not winning implies failure.
Poisson distribution – a Poisson distribution is a probability distribution that is used to show how many times an event is likely to occur over a specified period.
Example – Call centers use the Poisson distribution to model the number of expected calls per hour that they’ll receive so they know how many call center reps to keep on staff.
Normal Distribution – Normal distribution, also known as the Gaussian distribution, is a probability distribution that is symmetric about the mean, showing that data near the mean are more frequent in occurrence than data far from the mean. In graph form, normal distribution will appear as a bell curve.
Examples: Height of the population, rolling a dice, tossing a coin
LogNormal distribution – A lognormal distribution is a continuous distribution of random variable whose natural logarithm is normally distributed
Example: One of the most common applications where lognormal distributions are used in finance is in the analysis of stock prices.
 What is Asymmetric information?
Asymmetric information in insurance refers to a market situation in which one party in a transaction has insufficient information about the other party which leads to market failure. The problem of asymmetric information is common to all insurance markets.
 What is Bayes’ theorem?
Bayes’ theorem describes the probability of occurrence of an event related to any condition. It is also considered for the case of conditional probability.. Bayes theorem is also known as the formula for the probability of “causes”. It is way of finding a probability when we know certain other probabilities.
 Difference between assurance and insurance?
Insurance in a contract between a company (registered to sell insurance) and the person buying the policy (policyholder) which states that the company will compensate the policyholder in case of a specific loss in exchange for a premium.
Assurance is commonly used with insurance and is related to Life Insurance policies. Here the policyholder is assured that he/she will receive the compensation upon the occurrence of a certain event.
 Difference between multiple state model and multiple risks model.
Multistate models are models for a process, for example describing a life history of an individual, which at any time occupies one of a few possible states. This can describe several possible events for a single individual, or the dependence between several individuals.
Multiple risk models take into account the effects of various risks within children’s lives and the environments that impact their overall development. The greater the number of risk factors in a child’s life, the more likely that child is to face adversity or experience negative effects developmentally
 Law of large numbers.
The law of large numbers, in probability and statistics, states that as a sample size grows, its mean gets closer to the average of the whole population.
 Difference between Surrender and Lapse.
 lapse refers to the termination of policies without payout to policyholders
 surrender usually indicates that a surrender value is paid out to the policyholder.
 A life insurance lapse occurs when you stop paying your policy’s premium and the contractual grace period has expired
Surrender – It is the amount the policyholder will get from the life insurance company if he decides to exit the policy before maturity.
 What is the elasticity of price? State its one application in the real world?
Price elasticity measures the responsiveness of the quantity demanded or supplied of a good to a change in its price. It is computed as the percentage change in quantity demanded—or supplied—divided by the percentage change in price.
If a price change for a product causes a substantial change in either its supply or demand, it is considered elastic. Generally, it means that there are acceptable substitutes for the product. Examples would be cookies, luxury automobiles, and coffee.
 Suppose you are given a large dataset. How will you decide which distribution applies to it?
First observe the data. Is the data integer valued or is it continuous? If the data is integer valued you can think about distributions like Binomial, Negative Binomial and Poisson distribution. If mean is almost equal to the variance the distribution can be thought to have come from a Poisson Distribution. If mean is greater then variance then the data can be thought to have come from a Binomial Distribution. If mean is lesser than variance then we can consider a Negative Binomial Distribution.
If the data is continuous you can consider distributions like Normal, Cauchy, Exponential, Beta distribution. If the data is symmetric you can consider that the data is taken from a Normal or a Cauchy Distribution. If the tail probability is high take it to be a Cauchy Distribution otherwise take it to be Normal Distribution. If the Data appears to be positively skewed you can consider an Exponential Distribution and a Beta Distribution in case of Negatively Skewed Distribution.
Now suppose that you suspect that the data is obtained from some distribution. To confirm this you may use QQ Plots and tests like KolmogoravSmirnoff Test.
 What is the degree of confidence?
Degree of confidence represents the probability that the confidence interval captures the true population parameter. With a degree of confidence of 95%, you have 95% confidence that the true population parameters will be in the confidence interval. 95% is the standard.
 How is lognormal distribution used for actuarial science in insurance?
Lognormal distribution is a probability distribution that is used as a model to claim size distribution; it is positively skewed and has a range from zero to infinity.
 Tell us what is the cumulative distribution function, and when do we use it in statistics.
A device runs until either of two components fails, at which point the device stops running. The joint density function of the lifetimes of the two components, both measured in hours, is f (x,y)= x+y/4 for 0< x < 2 and 0< y < 2 . What is the probability that the device fails during its first three hours of operation? • What does the degree of confidence assigned by a participant to the probability of failure relative to a specified success criterion that is developed by an actuarial model of a risk management system depends on?