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 n1 or 2, with a market share of
around 20%.
AXA is the n1 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 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.
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. 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 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 BSE
2002 2005 2002 2005

End yr market cap (Rs. Bn) 3529.4 13503.94 2769.2 12138.7

Returns % 3.3 36.34 3.5 42.33

2002 2005
Indian Equity turnover (Rs.
Bn) 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 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
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 Non-Life
Total FDI (%) 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 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
 2.2.5 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 Group
Insurance 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)
(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
 2.3.3 Investments- Life Insurers

2004-05 2003-04
(Rs. Bn) (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 4.67 (4%)

(20.3%)
PUBLIC TOTAL 139.73 109.79
(79.7%) (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 4.87
(Rs BN)
% of Gross premium 27.32
Public 42.21
(Rs Bn)
% of Gross Premium 37.97
2.4.3 Investments- Non-Life Insurers
2004-05 2003-04
(Rs. Bn) (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 PBT
profit/loss
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 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 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. 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