i a CA Paris 2006 Session 73

8/4/2019 i a CA Paris 2006 Session 73

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2006 PARIS


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Insurance programme in developingcountries

Chairmen: Nick Dexter UK

Emmanuel Tassin France

Presenters: Bernard Cohendy France

P A Balasubramanian India

1st June 2006 14:15 15:45


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AXA in Sub-saharian Africa

Bernard Cohendy


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SOMMAIRE/SUMMARY

1 / P&C market

2 / Specificities

3 / Organisational principles

4 / Implementation of these principles

5 / Policy results


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1 P&C market

450M Euros of premiums in 17 countries.

4 main countries (Cameroon, The Ivory Coast,

Gabon, Senegal) account for 75% of totalpremiums.

AXA has offices in these 4 major countries,

where it ranks n1 or 2, with a market share of

around 20%.

AXA is the n1 Insurance Group.


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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) isvery similar to the French one.

A common language : French.

Insurance products are very close to thosedistributed in France.


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3 Organisational principles

Maximise AXAs assets :

Being the n1 insurance group,Access to AXA Frances expertise.

The 4 insurance companies act as one company : thanks to a management structure, a technicalexpertise, a financial control and people

management driven from AXA France. common means, products, methodologies andprocedures.


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4 Implementation of these principles

Common policies set in the following areas :technical expertise, sales, accounting and finance,organisation, reinsurance, human resources, IT.

Products, rules and procedures conception : in eacharea, 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, statutoryauditors relation monitoring.


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5 Policy results

Operating income reaching 15 % of turnover,recurring despite a high proportion ofreinsurance.

Growth margin in a developing market.


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IACA ConferenceJune 1st, 2006

Concurrent Session (Insurance)

Insurance Programme in Developing

CountriesIndian Overview

P.A. Balasubramanian


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Index

1. Indian Economic Environment1.1 GDP Growth rate at factor cost

1.2 Gross domestic savings

1.3 Gross domestic investments

1.4 Price situation

1.5 Domestic Financial Markets1.6 Foreign Exchange Reserves

1.7 Securities Market Equity

1.8 Assets under management of mutual funds

2. Insurance Industry2.1 De-regulation

2.2 Market Scenario

2.2.1 Insurance Penetration

2.2.2 Insurance Density


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2.2.3 Share Capital

2.2.4 Product Innovation

2.2.5 Distribution Channels2.3 Life Insurance

2.3.1 First Year Premium

2.3.2 Commission & Operation Expenses

2.3.3 Investments

2.3.4 Profits2.4 Non-Life Insurance

2.4.1 Premium Income

2.4.2 Commission & Operating Expenses

2.4.3 Investments

2.4.4 Under Writing Profit / Loss2.4.5 Re-insurance

2.4.6 De-tariffing


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3. Supervision and Regulation

3.1 Appointed Actuary System3.2 Supervision by the Regulator

3.3 Solvency of Insurers

4. Pension Reforms

5. Actuarial Standards

6. Taxation

6.1 Service Tax

6.2 Corporate Taxation6.3 Tax Relief on Insurance Policies

7. Self Regulatory Organizations


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1. Indian Economic Environment

1.1 GDP Growth rate at factor cost (at 1999-2000prices) 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%


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1.4 Price situation

WPI: 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)


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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

13035 60179

1.7 Securities Market - Equity


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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


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2.1 De-regulation of Insurance sector Insurance companies enjoyed the freedom to determinethe 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 October2002

2. Insurance Industry


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2.2 Market Scenario

Nearly six years since the insurance market has been openedup

Broadly the insurers can be divided into two categories:

Non-Life - Four PSUs (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 specializedinstitutions. One company has been granted license recently


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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


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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


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The opening up of the sector has resulted in introduction of newproducts, particularly, the unit linked products

Wider choice is available to the customer

Products tailor made to the needs of the insured. Availability ofriders, 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 andnon-life segments (credit insurance, mortgage insurance,

bancassurance products, term insurance, Micro insurance product)

Authority concerned about the policyholder making an un-informeddecision, both on the risks he bears and the costs borne by him

2.2.4 Product Innovation


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Authority concerned about the policyholder making an un-informed decision, both on the risks he bears and the costsborne by him

Policyholder must recognize that the risks in case of the unitlinked products are fully borne by him

In the non-life segment, weather insurance was first launchedin the country by a private insurer

Other products launched by non-life insurers include MutualFund Package Policy, Pollution Liability Package Policy andExport Credit (Short Term) Policy, Coverage for pre-existingdiseases, index based crop cover initiatives taken by thenew players

Additional covers have also been launched by ECGC in thearea of credit insurance

2.2.4 Product Innovation..Cont


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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


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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 throughagents, commercial lines handled by insurancebrokers and corporate agents


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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


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Segment wise Life Premium 2004-05 (Rs. Bn)Segment Individual

InsuranceGroup

Insurance

Linked

Public 42.91 N.A

Private 36.94 26.63

Non Linked

Public 117.89 77.43

Private 11.86 4.10


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2.3.2 Commission & Operating Expenses ofLife Insurers (2004-05)

Commission OperatingExpenses

Public 61.97 62.36

% of Gross premium 9 9

Private 8.53 22.28

% of Gross Premium 11 29

(Rs. Bn)


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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


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2.3.4 Profits of Life Insurers

None of the new Insurance Companies have made any profitsso far. There has been increasing losses in the operationsespecially with the high growth trend

Of the 12 new Insurers who have completed 3 or more yearsof operations, 6 Insurers have started reporting lower amountof losses during 2004-05 compared to previous yrs

As compared to the original financial projection at the time ofentry, the break-even period has extended by an year or twofor the early starters

Notwithstanding the loss in operations so far, the Life Insurershave started declaring bonuses on par business for marketingreasons and PRE consideration. This has necessitatedtransfer of fund from shareholders account to par-business toenable declaration of bonuses


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2.4.1 Gross Premium underwritten withinIndia 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


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Segment wise Non - Life Premium (%)

2004-05 2001-02

Fire 19.05 22.64

Marine 7.03 8.94

Misc 73.92 68.43


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2.4.2 Commission & Operating Expenses of Non LifeInsurers

Expenses Commission &Expenses

Private

(Rs BN)

4.87

% of Gross premium 27.32

Public

(Rs Bn)

42.21

% of Gross Premium 37.97


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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


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2.4.4 Underwriting Profit / Loss & PBT Non LifeInsurance 2004-05

Underwritingprofit/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


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2.4.6 Detariffing - Non life Industry

Persistent industry demand for freeing the general insurance marketfrom 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 themarket

Absence of data and lack of experience in underwriting could haveadverse consequences

Roadmap announced for de-tariffing in September, 2005 for orderlytransition from the present tariff market to free market

Insurers can determine their rates and terms from 1st January, 2007for all risks that they undertake

Preparedness to move to a de-tariff regime being monitored by theRegulator


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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 ofpremiums, expense control, bonus declarations, appropriatevaluation of liabilities)

Compliance with the Act provisions on certification ofassets&liabilities and maintenance of required solvency margin

Whistle blowing

In respect of Non-life Insurance Companies: Certification of IBNR Certification of product pricing


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3.2 Supervision by the Regulator

Offsite Monitoring through scrutiny andanalysis of financial and other reportsperiodically

On-site Monitoring Market Conduct inspection

Targeted inspection

Investment Audit


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3.3 Solvency of Insurers Sufficiency of Assets

Assets equivalent to value of liabilities + a margin (minimumRs.0.5 Bn)

Solvency Margin determined based on a formula factoringmathematical reserves and sum at risk (for life insurers) andfactoring gross / net premium and gross/net claims in respect ofnon-life insurers

Assets to be valued at value not exceeding marketable orrealizable value with certain assets excluded as prescribed

Value to be placed under liabilities in accordance withRegulations (methodology, manner of valuation, basis etc.,)

The existing practice of determining solvency margin hassafeguards to ensure sufficiency of assets to meet the liabilities

as margins are built in the determination of value of assets andvalue of liabilities and the system to identify on the basis ofanalysis of financial ratios an early warning signal for appropriateaction to be initiated by the Regulator

In future move to RBC model could be a possibility but requiresadequate study and examination


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4. Pension Reforms - India

A better Demographic profile Substantial decline independency 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


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5. Actuarial Standards

Appointed Actuary and Life Insurance business

Additional Guidance for Appointed Actuary andActuaries involved in Life Insurance

Financial Condition Report

Peer Review

Appointed Actuary and Principles of Life InsurancePolicy Illustrations

Appointed Actuary and Principles for determiningMargin for Adverse Deviations (MAD) in Life Insurance

liabilities Appointed Actuary and General Insurance Business


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6. Taxation

6.1 Service Tax

6.2 Corporate Taxation

6.3 Tax Relief on Insurance Policies


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7. Self Regulatory Organizations

The Life Insurance Council and the General InsuranceCouncil revived in February 2000

Performing the role of SROs in a limited manner by setting upmarket conduct standards

Industry associations can arrive at consensus on issues like

introducing concepts of additional disclosures, pool statisticaldata to facilitate pricing of products, evolve better riskmanagement system and set codes of best practice formarket conduct

Platforms for industry participants to interact and to set up practicesfor the healthy growth of the industry

Brokers Association Surveyors & Loss Assessors Actuarial Profession Accounting profession


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i a CA Paris 2006 Session 73

Documents

Transcript of i a CA Paris 2006 Session 73