Kathmandu. Real expertise is indispensable in risk-based decision-making in the financial system. Nepal has made it mandatory in insurance. But pension funds, civic investment funds, social security, banking and public finance remain largely untouched — design or neglect?
The Nepal Insurance Authority’s research report on actuarial analysts has been made entirely within the insurance sector – this is its mandate and its scope. However, its publication raises a broader question that the financial system has not adequately addressed: Why is actuarial expertise considered an insurance-specific necessity when analytical problems are rampant in the financial economy?
Actuarial science is fundamentally a discipline for quantifying and managing long-term financial risk under uncertainty. Insurance is one of its most familiar applications. However, the same discipline applies with equal force to the Employee Provident Fund. That should determine the value of long-term liabilities against uncertain future benefit claims. This applies to Employees Provident Fund and Citizen Investment Fund. It manages billions in retirement savings on behalf of workers who have no visibility into the actual health of these institutions.
Executive Director of NEA Sushil Dev Subedi said, “The actuaries provide strategic oversight, guidance, risk management, solution evaluation and financial decisions. ’
This applies to Nepal’s emerging social security system. The long-term sustainability of the contribution-benefit ratio requires probabilistic modeling for life insurers to perform on a regular basis. This applies to banks that conduct credit risk modelling and stress-testing. This applies to public infrastructure funds that manage liability-matching investment portfolios. The actuarial method provides tools in each of these domains. Which finance general experts do not have and which is not regularly applied in Nepal.
Actuarial expertise is standard globally but not mandatory in Nepal:
- Employees Provident Fund
- Citizen Investment Fund
- Social Security Fund
- Public pension schemes
- Banking Sector Stress Test
- Sovereign Property and Public Infrastructure Fund
The practical case for expanding the scope of compulsory actuarial employment is also a talent case. Nepal is struggling to hire real analysts in insurance. That’s because the domestic market is narrow enough to absorb the pipeline of graduates and provide the career diversity that professionals find abroad.
Reducing the pull towards India and other international destinations and expanding real requirements in fund management, social security administration and banking will create a larger and more diversified domestic market for actuarial skills. This is not a new idea. In the UK, USA, Australia and many advanced insurance markets, actuaries regularly work in pension fund management, banking regulation and public sector finance. The Society of Actuaries and Institutes and Faculty of Actuaries conduct certification tracks specifically for these non-insurance domains.
Nepal’s own guidelines note that real estate analysts are already conducting studies under these international agencies. This means that the qualification framework for wider deployment is already in place.
Coordination between Nepal Rastra Bank, Ministry of Finance, Social Security Fund and Nepal Insurance Authority is necessary to expand the mandatory use of actuarial expertise beyond insurance. This is a policy question, not just a regulatory one. But if Nepal is serious about building a domestic actuarial profession instead of training professionals for exports, it cannot leave much of its financial system untouched.
A question for policymakers: Nepal’s current risk quantification disciplines in insurance are applied to pension funds, sovereign wealth funds, and social security systems in most developed economies. As Nepal’s financial sector matures, shouldn’t actuarial certification be extended to organizations that manage workers’ retirement savings and public funds outside of insurance?
