2006 PARIS. Insurance programme in developing countries Chairmen: Nick Dexter UK Emmanuel Tassin...
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Transcript of 2006 PARIS. Insurance programme in developing countries Chairmen: Nick Dexter UK Emmanuel Tassin...
2006 PARIS
Insurance programme in developing countries
Chairmen: Nick Dexter UK
Emmanuel Tassin France
Presenters: Bernard Cohendy France
P A Balasubramanian India
1st June 2006 14:15 – 15:45
AXA in Sub-saharian Africa
Bernard Cohendy
SOMMAIRE/ SUMMARY
1 / P&C market
2 / Specificities
3 / Organisational principles
4 / Implementation of these principles
5 / Policy results
1 – P&C market
450M Euros of premiums in 17 countries.
4 main countries (Cameroon, The Ivory Coast, Gabon, Senegal) account for 75% of total premiums.
AXA has offices in these 4 major countries, where it ranks n°1 or 2, with a market share of around 20%.
AXA is the n°1 Insurance Group.
2 – Specificities
Each insurance company is relatively small.
Commercial lines represent 70% of the business.
As a consequence, reinsurance is important.
The legal framework (insurance law, civil law) is very similar to the French one.
A common language : French.
Insurance products are very close to those distributed in France.
3 – Organisational principles
Maximise AXA’s assets : • Being the n°1 insurance group,• Access to AXA France’s expertise.
The 4 insurance companies act as one company : • thanks to a management structure, a technical expertise, a financial control and people management driven from AXA France.• common means, products, methodologies and procedures.
4 – Implementation of these principles
Common policies set in the following areasCommon policies set in the following areas : : technical expertise, sales, accounting and finance, organisation, reinsurance, human resources, IT.
Products, rules and procedures conception : in each area, according to set policies.
Policies compliance control : reporting, audits, … People management : daily, focus groups, seminars,
training, … Financial year closing : decision making process,
conservative rules and norms setting, statutory auditors relation monitoring.
5 – Policy results
Operating income reaching 15 % of turnover, Operating income reaching 15 % of turnover, recurring despite a high proportion of recurring despite a high proportion of reinsurance.reinsurance.
Growth margin in a developing market.Growth margin in a developing market.
IACA Conference
June 1st, 2006
Concurrent Session (Insurance)
‘Insurance Programme in Developing
Countries – Indian Overview’
P.A. Balasubramanian
Index
1. Indian Economic Environment1.1 GDP Growth rate at factor cost1.2 Gross domestic savings1.3 Gross domestic investments1.4 Price situation1.5 Domestic Financial Markets1.6 Foreign Exchange Reserves1.7 Securities Market – Equity1.8 Assets under management of mutual funds
2. Insurance Industry2.1 De-regulation2.2 Market Scenario
2.2.1 Insurance Penetration2.2.2 Insurance Density
2.2.3 Share Capital2.2.4 Product Innovation2.2.5 Distribution Channels
2.3 Life Insurance2.3.1 First Year Premium2.3.2 Commission & Operation Expenses2.3.3 Investments2.3.4 Profits
2.4 Non-Life Insurance2.4.1 Premium Income2.4.2 Commission & Operating Expenses2.4.3 Investments2.4.4 Under Writing Profit / Loss 2.4.5 Re-insurance2.4.6 De-tariffing
3. Supervision and Regulation
3.1 Appointed Actuary System
3.2 Supervision by the Regulator
3.3 Solvency of Insurers
4. Pension Reforms
5. Actuarial Standards
6. Taxation
6.1 Service Tax
6.2 Corporate Taxation
6.3 Tax Relief on Insurance Policies
7. Self Regulatory Organizations
1. Indian Economic Environment1.1 GDP Growth rate at factor cost (at 1999-2000
prices) 4.4% ( 2000-01) to 8.1 % (2005-06) Agriculture Allied 2.3% - Industry 9 % and
services 9.8 % (2005-06)1.2 Gross domestic savings
23.5% (2000-01) to 29.1% (2004-05) of which household-sector 22%
1.3 Gross domestic investments 24.2 % (2000-01) to 30.1%(2004-05) of
which Private-sector 20%
1.4 Price situationWPI: 6.5% (2002-03) to 4.1% (2005-06)
CPI : 4.1 %(2002-03) to 5.6% (2005-06)
1.5 Domestic Financial MarketsGOI bond Market: Rs. 10515 billion (end 2005)Corporate bonds: ______GOI bond interest rate:
Notional ZC 1 yr bond: 5.44% (2002) to 6.28% (2005) Notional ZC 10 yr bond: 6.12(2002) to 7.22%(2005)
1.6 Foreign Exchange Reserves (USD Bn)42.28 (2000-01) to 141.51(2004-05)
End yr market cap (Rs. Bn)
Returns %
Indian Equity turnover (Rs. Bn)
NIFTY BSE
2002 2005 2002 2005
3529.4 13503.94 2769.2 12138.7
3.3 36.34 3.5 42.33
2002 2005
1303560179
1.7 Securities Market - Equity
1.8 Assets under management of mutual funds (Rs. Bn)
Particulars 2002 2005
Money Market fund 108.01 647.11
Income fund 774.69 529.03
Growth fund 143.71 671.44
Balanced 141.64 68.33
2.1 De-regulation of Insurance sector Insurance companies enjoyed the freedom to determine
the rate Life ( prior to 1956); Non-Life ( prior to 1973)
Nationalization helped in deployment of massive financial resources
Reform process initiated in 1991 Committee on Reforms in Insurance sector – 1994 IRDA Act Passed – December 1999 Statutory Authority established – 19th April 2000 First set of Regulations notified – 19th July, 2000 First set of Registration (Licenses) granted – 23rd October
2002
2. Insurance Industry
2.2 Market Scenario
Nearly six years since the insurance market has been opened up
Broadly the insurers can be divided into two categories: Non-Life - Four PSU’s (New India, National, Oriental, United),
two specialized insurers - ECGC, Agriculture Insurance Co. Ltd. and nine private players
Life – One PSU (LIC) and 14 private life insurance companies Reinsurance – One – GIC – designated as the national
reinsurer 15 players each are operating in the life 12 in the non life segments. In addition there are 2 specialized
institutions. One company has been granted license recently
2.2.1 Insurance Penetration (Premium as % of GDP)
Year Total Business Life Non Life
1996 1.84 1.29 0.55
2004 3.17 2.53 0.65
2.2.2 Insurance Density (Premium per capita in USD)
1996 7.00 5.00 2.00
2004 19.70 15.70 4.00
Source: Swiss Re
Life Non-Life
Total FDI (%) Total FDI(%)
Private 43.48 24.24 10.49 23.47
Public 1.0 -- 4.5 --
2.2.3 Share Capital (Rs. Bn) March 2005
The opening up of the sector has resulted in introduction of new products, particularly, the unit linked products
Wider choice is available to the customer Products tailor made to the needs of the insured. Availability of
riders, particularly term rider, Health riders including Hospital benefit rider, Term Rider have been a positive developments
Annuity as against guaranteed annuities there is a move to offer variable annuity (guarantee for a shorter term)
Insurers putting in efforts to develop products both in the life and non-life segments (credit insurance, mortgage insurance, bancassurance products, term insurance, Micro insurance product)
Authority concerned about the policyholder making an un-informed decision, both on the risks he bears and the costs borne by him
2.2.4 Product Innovation
Authority concerned about the policyholder making an un-informed decision, both on the risks he bears and the costs borne by him
Policyholder must recognize that the risks in case of the unit linked products are fully borne by him
In the non-life segment, weather insurance was first launched in the country by a private insurer
Other products launched by non-life insurers include Mutual Fund Package Policy, Pollution Liability Package Policy and Export Credit (Short Term) Policy, Coverage for pre-existing diseases, index based crop cover – initiatives taken by the new players
Additional covers have also been launched by ECGC in the area of credit insurance
2.2.4 Product Innovation…..Cont
Distribution Channels Agents – Individual and Corporate Agents Brokers Bancassurance Referral Arrangements Direct Marketing
Distribution of business channel wise (Life) Individual Agents – 88.65% Corporate Agents – 6.82% Brokers – 0.35% Direct Business – 2.58% Others (Referral Arrangement) – 1.60%
2.2.5 Distribution Channels
No. of Intermediaries (March, 2005) Direct Agents - 1.254 Mn Corporate Agents 3112 (Life) + 1686 (non-life) TPAs: 24 Brokers: 226
Retail business in non-life channeled through agents, commercial lines handled by insurance brokers and corporate agents
INSURER 2005-06
2001-02
PRIVATE TOTAL 102.52 (28.55%) 2.68 (1.34%)
PUBLIC TOTAL 256.45 (71.44%) 195.88 (98.65)
GRAND TOTAL 358.97 198.56
2.3.1 First Year Premium – Life Insurance (Rs. Bn)
2.3 Life Insurance
Segment wise Life Premium 2004-05 (Rs. Bn)
Segment Individual Insurance
Group
Insurance
Linked
Public 42.91 N.A
Private 36.94 26.63
Non Linked
Public 117.89 77.43
Private 11.86 4.10
2.3.2 Commission & Operating Expenses of Life Insurers (2004-05)
Commission Operating Expenses
Public 61.97 62.36
% of Gross premium 9 9
Private 8.53 22.28
% of Gross Premium 11 29
(Rs. Bn)
2004-05
(Rs. Bn)
2003-04
(Rs. Bn)
Private Sector 101.63 46.65
Public Sector 4182.88 3479.59
2.3.3 Investments- Life Insurers
2.3.4 Profits of Life Insurers
None of the new Insurance Companies have made any profits so far. There has been increasing losses in the operations especially with the high growth trend
Of the 12 new Insurers who have completed 3 or more years of operations, 6 Insurers have started reporting lower amount of losses during 2004-05 compared to previous yrs
As compared to the original financial projection at the time of entry, the break-even period has extended by an year or two for the early starters
Notwithstanding the loss in operations so far, the Life Insurers have started declaring bonuses on par business for marketing reasons and PRE consideration. This has necessitated transfer of fund from shareholders’ account to par-business to enable declaration of bonuses
2.4.1 Gross Premium underwritten within India – Non-Life (Rs. Bn)
INSURER 2004-05 2001-02
PRIVATE TOTAL 35.58 (20.3%)
4.67 (4%)
PUBLIC TOTAL 139.73
(79.7%)
109.79 (96%)
GRAND TOTAL 175.31 114.46
2.4 Non-life Insurance
Segment wise Non - Life Premium (%)
2004-05 2001-02
Fire 19.05 22.64
Marine 7.03 8.94
Misc 73.92 68.43
2.4.2 Commission & Operating Expenses of Non Life Insurers
Expenses Commission & Expenses
Private
(Rs BN)
4.87
% of Gross premium 27.32
Public
(Rs Bn)
42.21
% of Gross Premium 37.97
2.4.3 Investments- Non-Life Insurers
2004-05
(Rs. Bn)
2003-04
(Rs. Bn)
Private Sector 25.55 18.50
Public Sector 348.57 322.25
Total 374.12 340.75
2.4.4 Underwriting Profit / Loss & PBT – Non Life Insurance – 2004-05
Underwriting profit/loss
PBT
Public (Rs Bn) -25.79 17.29
% of Net premium 23.2 --
Private (Rs Bn) 0.025 1.80
% of Gross Premium 0.14 --
4 out of 8 new insurance companies made profit
All the 4 public companies continued to make loss
2.4.5 Reinsurance National Re-insurer to accept 20 per cent compulsory reinsurance
cessions Objective of the reinsurance programme of every company shall
be: a) maximise retention within the country; b) develop adequate
capacity; c) secure the best possible protection for the reinsurance costs incurred; d) simplify the administration of business
Every insurer to maintain the maximum possible retention commensurate with its financial strength and volume of business
Re-insurer rating not below BBB (Standard & Poor) or equivalent Net Retentions of Non-Life Insurers
2004-05– Fire 76 % Engineering 76 %– Marine Cargo 85% Motor 99.6 %– Marine Hull 25.6% Aviation 23.5 %– Miscellaneous 88% Total 86.45 %
2.4.6 Detariffing - Non life Industry Persistent industry demand for freeing the general insurance market
from rigidities Presently, regime where tariffs are prescribed by an outside agency System of having tariffs in some risks and free rates for others
leading to distortions in pricing Consumer stands to gain in a free market De-tariffing is essential pre-requisite for the healthy growth of the
market Absence of data and lack of experience in underwriting could have
adverse consequences Roadmap announced for de-tariffing in September, 2005 for orderly
transition from the present tariff market to free market Insurers can determine their rates and terms from 1st January, 2007
for all risks that they undertake Preparedness to move to a de-tariff regime being monitored by the
Regulator
3. Supervision and Regulation3.1 Appointed Actuary System Mandatory for all Life and non- life insurance companies Responsibilities differ between life and non-life companies
with highest involvement in life company Duties and obligations include in respect of Life Insurance
Company: Ensuring solvency of the Insurer at all times (adequacy of
premiums, expense control, bonus declarations, appropriate valuation of liabilities)
Compliance with the Act provisions on certification of assets&liabilities and maintenance of required solvency margin
Whistle blowing In respect of Non-life Insurance Companies:
Certification of IBNR Certification of product pricing
3.2 Supervision by the Regulator
Offsite Monitoring through scrutiny and analysis of financial and other reports periodically
On-site Monitoring Market Conduct inspection Targeted inspection Investment Audit
3.3 Solvency of Insurers Sufficiency of Assets
Assets equivalent to value of liabilities + a margin (minimum Rs.0.5 Bn)
Solvency Margin determined based on a formula factoring mathematical reserves and sum at risk (for life insurers) and factoring gross / net premium and gross/net claims in respect of non-life insurers
Assets to be valued at value not exceeding marketable or realizable value with certain assets excluded as prescribed
Value to be placed under liabilities in accordance with Regulations (methodology, manner of valuation, basis etc.,)
The existing practice of determining solvency margin has safeguards to ensure sufficiency of assets to meet the liabilities as margins are built in the determination of value of assets and value of liabilities and the system to identify on the basis of analysis of financial ratios an early warning signal for appropriate action to be initiated by the Regulator
In future move to RBC model could be a possibility but requires adequate study and examination
4. Pension Reforms - India
A better Demographic profile – Substantial decline in dependency Ratio
No pension benefits to 87% percent of population 74% work force in unorganized sector A New Pension Scheme to Government employees A smooth shift from Defined Benefit to Defined
Contribution System Constitution of Pensions Regulator in the offing
5. Actuarial Standards Appointed Actuary and Life Insurance business Additional Guidance for Appointed Actuary and
Actuaries involved in Life Insurance
Financial Condition Report Peer Review Appointed Actuary and Principles of Life Insurance
Policy Illustrations Appointed Actuary and Principles for determining
Margin for Adverse Deviations (MAD) in Life Insurance liabilities
Appointed Actuary and General Insurance Business
6. Taxation6.1 Service Tax
6.2 Corporate Taxation
6.3 Tax Relief on Insurance Policies
7. Self Regulatory Organizations The Life Insurance Council and the General Insurance
Council revived in February 2000 Performing the role of SROs in a limited manner by setting up
market conduct standards Industry associations can arrive at consensus on issues like
introducing concepts of additional disclosures, pool statistical data to facilitate pricing of products, evolve better risk management system and set codes of best practice for market conduct
Platforms for industry participants to interact and to set up practices for the healthy growth of the industry Brokers Association Surveyors & Loss Assessors Actuarial Profession Accounting profession