COVID SURVEY

M/s. K. A. Pandit, Actuaries and Consultants conducted a short dipstick survey as India entered a new financial year amongst the uncertainty and volatility around us due to the lockdown and COVID-19 situation. In particular,we have asked how companies may incorporate their short term business plans with respect to their workforce,into the assumption setting for the year end actuarial valuations.There is no doubt the opinion is that current events are going to have asignificant impact on business andmany say it will last for up to 12 months.In that light, a majority feel that short term modification of assumptions surrounding salary growth and attrition should be considered.

A Summary ofthe results of the same is illustrated here ->

Business Outlook

~ 52% say business impact will be HIGH

~ 37% say it will be MODERATE

~ 39% felt it will last 6 to 12 months whilst

~ 33% felt it will be 3 to 6 months

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Salary Growth Assumption

>55% feel assumption should be relooked at

~70% feel a lower assumption for 1 to 2 years followed by reverting to longer term assumption may be suitable.

Highest number of responses said 2% to 5% p.a. for a short term assumption was reasonable.

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Attrition Rate Assumption

Split view whether attrition assumption

~57% feel it should be modified, and a lower rate may be suitable in the short term

~42% chose an attrition assumption more than“5% to 10%” in the short term

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Dataset Details:

46 Companies responded over a period of 2.5 months and the results herewith are based on the updates as on 30th June 2020.

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WAY FORWARD AND ASSUMPTION SETTING

The world is facing unprecedented circumstances amid a pandemic whose complete financial impact is yet to be gauged. Hence, to survive through this time some companies have decided to temporarily pause salary increments or to provide deferred salary increments when times improve, whilst others have had to resort to pay-cuts and layoffs.

Whilst setting assumptions, as they are the long-term best estimated of the company, it is important that we take into consideration the future outlook and business plan of a company.

Hence it is seen that many companies are adopting staggered assumptions that reflect shorter term rates for 1-2years and then reverting to a longer term assumption. It is our recommendation to conduct an “Experience Analysis/Study” to understand past longer term trends of assumptions to set a future outlook so that it can build a basis for selecting new assumptions while simultaneously serve as a documentation for Auditors during the audit exercise.

Should you wish to revisit the assumptions considered when conducting an Actuarial valuation for your company, please feel free to contact us.

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