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2006 PARIS

2006 PARIS. Insurance programme in developing countries. Chairmen : Nick Dexter UK Emmanuel Tassin France Presenters : Bernard Cohendy France P A Balasubramanian India . 1 st June 2006 14:15 – 15:45. AXA in Sub-saharian Africa.

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2006 PARIS

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  1. 2006 PARIS

  2. 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

  3. AXA in Sub-saharian Africa Bernard Cohendy

  4. SOMMAIRE/ SUMMARY • 1 / P&C market • 2 / Specificities • 3 / Organisational principles • 4 / Implementation of these principles • 5 / Policy results

  5. 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.

  6. 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.

  7. 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.

  8. 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 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.

  9. 5 – Policy results • Operating income reaching 15 % of turnover, recurring despite a high proportion of reinsurance. • Growth margin in a developing market.

  10. IACA Conference June 1st, 2006 Concurrent Session (Insurance) ‘Insurance Programme in Developing Countries – Indian Overview’ P.A. Balasubramanian

  11. Indian Economic Environment 1.1 GDP Growth rate at factor cost 1.2 Gross domestic savings 1.3 Gross domestic investments 1.4 Price situation 1.5 Domestic Financial Markets 1.6 Foreign Exchange Reserves 1.7 Securities Market – Equity 1.8 Assets under management of mutual funds Insurance Industry 2.1 De-regulation 2.2 Market Scenario 2.2.1 Insurance Penetration 2.2.2 Insurance Density Index

  12. 2.2.3 Share Capital 2.2.4 Product Innovation 2.2.5 Distribution Channels 2.3 Life Insurance 2.3.1 First Year Premium 2.3.2 Commission & Operation Expenses 2.3.3 Investments 2.3.4 Profits 2.4 Non-Life Insurance 2.4.1 Premium Income 2.4.2 Commission & Operating Expenses 2.4.3 Investments 2.4.4 Under Writing Profit / Loss 2.4.5 Re-insurance 2.4.6 De-tariffing

  13. 3. Supervision and Regulation 3.1 Appointed Actuary System 3.2 Supervision by the Regulator 3.3 Solvency of Insurers Pension Reforms Actuarial Standards Taxation 6.1 Service Tax 6.2 Corporate Taxation 6.3 Tax Relief on Insurance Policies 7. Self Regulatory Organizations

  14. Indian Economic Environment • 1.1 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%

  15. 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 Markets GOI 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)

  16. 1.7 Securities Market - Equity • End yr market cap (Rs. Bn) • Returns % • Indian Equity turnover (Rs. Bn) 20022005 13035 60179

  17. 1.8 Assets under management of mutual funds (Rs. Bn)

  18. 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

  19. 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 Market Scenario

  20. Source: Swiss Re

  21. 2.2.3 Share Capital (Rs. Bn) March 2005

  22. 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

  23. 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

  24. 2.2.5 Distribution Channels 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%

  25. 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

  26. 2.3.1 First Year Premium – Life Insurance (Rs. Bn) 2.3 Life Insurance

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

  28. 2.3.2 Commission & Operating Expenses of Life Insurers (2004-05) (Rs. Bn)

  29. 2.3.3 Investments- Life Insurers

  30. 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 2.3.4 Profits of Life Insurers

  31. 2.4.1 Gross Premium underwritten within India – Non-Life (Rs. Bn) 2.4 Non-life Insurance

  32. Segment wise Non - Life Premium (%)

  33. 2.4.2 Commission & Operating Expenses of Non Life Insurers

  34. 2.4.3 Investments- Non-Life Insurers

  35. 2.4.4 Underwriting Profit / Loss & PBT – Non Life Insurance – 2004-05 • 4 out of 8 new insurance companies made profit • All the 4 public companies continued to make loss

  36. 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 Insurers2004-05 Fire 76 % Engineering 76 % Marine Cargo 85% Motor 99.6 % Marine Hull 25.6% Aviation 23.5 % Miscellaneous 88% Total 86.45 % 2.4.5 Reinsurance

  37. 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 2.4.6 Detariffing - Non life Industry

  38. 3.1 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. Supervision and Regulation

  39. Offsite Monitoring through scrutiny and analysis of financial and other reports periodically On-site Monitoring Market Conduct inspection Targeted inspection Investment Audit 3.2 Supervision by the Regulator

  40. 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 3.3 Solvency of Insurers

  41. 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 4. Pension Reforms - India

  42. 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 5. Actuarial Standards

  43. 6. Taxation 6.1 Service Tax 6.2 Corporate Taxation 6.3 Tax Relief on Insurance Policies

  44. 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 7. Self Regulatory Organizations

  45. Thank you Thank you

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