Pr

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2006 PARIS
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Insurance programme in developing countries
Chairmen Nick Dexter UK
Emmanuel Tassin France Presenters Bernard
Cohendy France P A
Balasubramanian India

1st June 2006 1415 1545
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AXA in Sub-saharian Africa
Bernard Cohendy
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SOMMAIRE/ SUMMARY
1 / PC market 2 / Specificities 3 /
Organisational principles 4 / Implementation of
these principles 5 / Policy results

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• 1 PC 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 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) is
  very similar to the French one.
• A common language French.
• Insurance products are very close to those
  distributed 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 technical
  expertise, a financial control and people
  management driven from AXA France.
• common means, products, methodologies and
  procedures.

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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
  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.

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

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

• 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

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• 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

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• 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

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• 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

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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 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)

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1.7 Securities Market - Equity
NIFTY NIFTY BSE BSE
2002 2005 2002 2005
3529.4 13503.94 2769.2 12138.7
3.3 36.34 3.5 42.33

• End yr market cap (Rs. Bn)
• Returns
• Indian Equity turnover (Rs. Bn)

2002 2005 13035 60179
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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. 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

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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 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 specialized institutions. One company has
  been granted license recently

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2.2.1 Insurance Penetration (Premium as of GDP) 2.2.1 Insurance Penetration (Premium as of GDP) 2.2.1 Insurance Penetration (Premium as of GDP) 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) 2.2.2 Insurance Density (Premium per capita in USD) 2.2.2 Insurance Density (Premium per capita in USD) 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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2.2.3 Share Capital (Rs. Bn) March 2005
Life Life Non-Life Non-Life
Total FDI () Total FDI()
Private 43.48 24.24 10.49 23.47
Public 1.0 -- 4.5 --
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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

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2.2.4 Product Innovation..Cont

• 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

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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

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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 through
  agents, commercial lines handled by insurance
  brokers and corporate agents

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2.3.1 First Year Premium Life Insurance (Rs.
Bn)
2.3 Life Insurance
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
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Segment wise Life Premium 2004-05 (Rs. Bn)
Segment Individual Insurance Group Insurance
Linked Linked Linked
Public 42.91 N.A
Private 36.94 26.63
Non Linked Non Linked Non Linked
Public 117.89 77.43
Private 11.86 4.10
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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 8.53 22.28
of Gross Premium 11 29
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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
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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

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

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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 Insurers2004-05
• Fire 76 Engineering 76
• Marine Cargo 85 Motor 99.6
• Marine Hull 25.6 Aviation 23.5
• Miscellaneous 88 Total 86.45

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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

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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 assetsliabilities 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 and analysis
  of financial and other reports periodically
• 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 (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

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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

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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

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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
  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

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Thank you
Thank you