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 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,
recurring despite a high proportion of
reinsurance.
 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 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
2.
Insurance Industry
2.1 De-regulation
2.2 Market Scenario
2.2.1 Insurance Penetration
2.2.2 Insurance Density
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
3. Supervision and Regulation
3.1 Appointed Actuary System
3.2 Supervision by the Regulator
3.3 Solvency of Insurers
4.
5.
6.
Pension Reforms
Actuarial Standards
Taxation
6.1 Service Tax
6.2 Corporate Taxation
6.3 Tax Relief on Insurance Policies
7. Self Regulatory Organizations
1. 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%
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)
1.7 Securities Market - Equity
NIFTY
2002
BSE
2005
2002
2005
 End yr market cap (Rs. Bn) 3529.4
13503.94 2769.2
12138.7
 Returns %
36.34
42.33
 Indian Equity turnover (Rs.
Bn)
3.3
3.5
2002
2005
13035
60179
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. Insurance Industry
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
2.2 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
2.2.3 Share Capital (Rs. Bn) March 2005
Life
Total
FDI (%)
Non-Life
Total
FDI(%)
Private
43.48
24.24
10.49
23.47
Public
1.0
--
4.5
--
2.2.4 Product Innovation
 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…..Cont
 Authority concerned about the policyholder making an uninformed 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
2.2.5 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%
 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
2.3 Life Insurance
2.3.1 First Year Premium – Life Insurance (Rs. Bn)
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
Segment wise Life Premium 2004-05 (Rs. Bn)
Segment
Individual
Insurance
Group
Insurance
Public
42.91
N.A
Private
36.94
26.63
Public
117.89
77.43
Private
11.86
4.10
Linked
Non Linked
2.3.2 Commission & Operating Expenses of
Life Insurers (2004-05)
(Rs. Bn)
Commission Operating
Expenses
Public
61.97
62.36
% of Gross premium 9
9
Private
22.28
8.53
% of Gross Premium 11
29
2.3.3 Investments- Life Insurers
2004-05
(Rs. Bn)
2003-04
(Rs. Bn)
Private Sector
101.63
46.65
Public Sector
4182.88
3479.59
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 Non-life Insurance
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
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
Public (Rs Bn)
% of Net premium
Private (Rs Bn)
% of Gross Premium
PBT
-25.79
17.29
23.2
--
0.025
1.80
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
Marine Cargo
Marine Hull
Miscellaneous
76 %
85%
25.6%
88%
Engineering
Motor
Aviation
Total
76 %
99.6 %
23.5 %
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 Regulation
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
3.2 Supervision by the Regulator
 Offsite Monitoring through
analysis of financial and
periodically
 On-site Monitoring
 Market Conduct inspection
 Targeted inspection
 Investment Audit
scrutiny and
other reports
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. Taxation
6.1 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