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PPT made by Saurav Tibrewal, Varun Goel and Me for Reinsurance Business

PPT made by Saurav Tibrewal, Varun Goel and Me for Reinsurance Business

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  • NavinBhaiismeapan log kobatanapadegaki ye strategies kaise usekarskatihaigic reKuch mil nhirhaiskeupar so thoda gas de dena
  • ILS is speciality of swiss re who recently got $150 mn protection for california earthquakes from redwood capital by isuing catastrophe bonds
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  • I didn’t understood much about it but aapkopdfbhejrahahunalog with it kuchsamajh me aaye to dekhlena

Kingofkings amazaan iift_final Kingofkings amazaan iift_final Presentation Transcript

  • King Of KingsTeam AMAZAAN
  • Global Reinsurance Industry Market size of $165 billion in 2009 Reinsurance market took a hit in 2008 Market Share in 2009 in recession but is expected to again surge to $ 199 billion by 2014 Munich Reinsurance Co. Swiss Global Reinsurance market Reinsurance 21% Value (in bn $) Co. Hannover 250 Rueckversicher 50% 13% 200 ung AG 150 Berkshire Hathaway Re 100 8% 8% 50 Other 0 Source: Datamonitor 2005 2006 2007 2008 2009 Source: Datamonitor
  • Global Reinsurance Industry  US got maximum hit from recession in 2008  Europe’s re insurance Industry has still not recovered to the extent of its fall  Asia’s industry is showing a lot of growth potential Major Reinsurance markets:  European countries – Switzerland, Germany, Spain  United States  Bermuda  Japan  ChinaWorld Catastrophe Re Insurance Market 2008
  • Major Global players Berkshire Parameters Hannover Munich Re Swiss Re Hathaway, Inc $112,493 million in $14,287 million in Revenues $74,936 $30709 million in 2009 2009 2009Profit Margin 7.2% 7.1% 4.7% 1.9% 1. Munich Re offers a General Re provides 1. Its non life broad range of 1. It operates through a property and reinsurance business products, from network of more than casualty insurance includes property traditional 90 offices in over 25 and reinsurance, and casualty reinsurance to countries, as well as life/health business, financial alternative risk through reinsurance reinsurance and reinsurance and financing. brokers other reinsurance specialty business, 2. The group 2. The groups intermediary and catastrophe business Important reinsures the risks reinsurance products risk management, 2. Through financialconsiderations of oil rigs, satellites are complemented by underwriting reinsurance, the and natural insurance-based management and group offers its disasters, and the corporate finance investment clients individually risks arising from solutions and management structured coverage the use of genetic supplementary services in 55 in order to stabilize engineering and services for citiesa cross the their profits and information comprehensive risk world so it has a protect their technology. management. very wide reach financial statements.
  • Insurance in IndiaSource: Annual report FY 2000-09, Insurance Development Regulatory Authority
  • Life Insurance Business in India Gross Premiums  Penetration of Life Insurance – close to 3%  Sharp fall in growth after recession  Private players are growing at a faster pace Major Players LIC ICICI Prudential 2.22 Bajaj Allianz Emerging markets 2.06 SBI Life 2.51 like India have 3.25 HDFC Standard Life exhibited a strong Birla Sun Life Reliance growth 4.79 Max New York momentum, driven 6.92 Tata AIG Aviva by a robust OM Kotak Lifedemand, consumpti 70.92 Metlifeon and savings rate – LIC is the ING Vysya PWC Assocham major Shriram Life Sahara Report player Bharti AXA IDBI Fortis Life
  • Non Life Insurance Business in India Gross Premiums  Non Life Insurance Business in India is quite volatile in terms of premiums  Still it has registered a growth of around 18% over the last 7 Income Projections by Goldman Sachs years Middle class (yearly income>$3000) Major Players 120.00% 100.00% 80.00% ICICI-lombard Bajaj Allianz India is expected to 60.00% 13% 11% India Reliance Generalsee higher growth in 40.00% 9% IFFCO-TokioInsurance driven by 20.00% 14% Tata-AIG Royal Sundaram the regulatory0.00% 6% Cholamandalam 2005 2010 2025 2050 changes in the 5% HDFC ERGO General industry and 14% Future Generali New 3% underlying socio New India India is 3% National economic trends the 18% 1% 2% United India - KPMG Report major 1% Oriental player
  • Current structure of Reinsurance Industry in IndiaPrimary General Compulsory Cession Retrocession toInsurance Companies to GIC Foreign Companies First General Insurance companies approach GIC Current situation of GIC Re In Indian Market Re for Mandatory Cession of 10% Most companies get more than mandatory sum reinsured through GIC Re instead of  Revenues of ` 719 crores in year 2009-2010. approaching other smaller domestic players or  Almost monopoly like situation in General foreign players with regulatory issues reinsurance market with 65 % market share GIC Re in turn have contracts with foreign  Mandatory cessions to GIC and its right of first companies like Munich Re & Lloyd to share the refusal privilege burden of Reinsurance risk For the Indian financial year of 2008-09, the general insurance premium in India was around $6bn. The domestic companies retentions were approximately 70% and ceded reinsurance premium was about 30% out of which 66.6% was with GIC Re.
  • GIC Re Business Composition India Class wise Premium Foreign Class wise Premium Salient Features • Only one National Re Insurer - International & DomesticMajor Player GIC GIC’s expansion Business composition into foreign • All Non Life Insurers has to markets helped it compulsorily reinsure their Domestic Obligatory business with GIC to not only 38%Re Insurance depend on Foreign 62% India’s insurers • FDI of 49% has been proposed FDI
  • Reinsurance Industry -SWOT ANALYSIS Strength WeaknessStrength Weakness  Vast Emerging economy with Dominated by State Owned more than one billion people Insurers  High Rate of Savings culminate The non-life penetration rate is into Insurance Products among the lowest in the world  Resilient against global  Lower spending Indian Population slowdown  Growth Rate of Insurance in India close to 25%Opportunities Threats  Long Term Potential Current Political Environment  Wealthier Middle Class Bureaucracy Economic Forces will force  Pricing wars once foreign Government to relinquish players come in regulations  Changing Government  Insurance penetration in Regulations India – premium to GDP ratio close to 2% while in developed economies, it is 8-10% 10
  • Growth DriversGrowth Drivers of Insurance Industry = Growth in Re Insurance Industry Growing GDP – Higher Penetration Expected Removal of Controlled Tariffs Emergence of New Distribution Channels Increasing Consumer Awareness Increase International Trade
  • Growth DriversGrowth Drivers of Insurance Industry = Growth in Re Insurance Industry Growing GDP Removal of Controlled Tariffs  Pension Sector Reforms  Government Reforms  Rising Disposable  Increase in FDI limits Incomes Emergence of New Distribution Channels  Lower cost access to customers  Ease of availability Increasing Consumer Awareness Increasing International Trade  Higher Growth Rates  New trade finance products  Innovative products  Demand for credit insurance
  • Growing GDP – Higher Penetration expectedNon-life 2005 2006 2007 2008 2009 2010f 2011f 2012f 2013f 2014f Nominal GDP, US$bn 799.7 934.6 1046.9 1326.4 1171.5 1327.9 1780.3 2085.7 2390.5 2721.6 Penetration rate of NonPenetration, % of GDP 0.61% 0.61% 0.67% 0.53% 0.47% 0.55% 0.62% 0.69% 0.90% 1.17% LifeDensity, US$ per Insurancecapita 4.38 5.12 6.15 6.11 4.73 6.11 9.17 11.87 17.43 25.41 sector is going to– EUR per capita 3.51 4.09 4.49 4.15 3.36 4.46 6.88 9.38 13.94 20.33 increase at aLife rapid pacePopulation, mn 1,106 1,122 1,138 1,154 1,170 1,187 1,203 1,219 1,235 1,251  As the perPenetration, % of GDP 3.01% 3.70% 4.67% 3.67% 4.37% 4.05% 3.17% 2.83% 2.58% 2.37% capita income inDensity, US$ per Indiacapita 21.75 30.79 42.98 42.21 43.77 45.33 46.89 48.44 50 51.61 grow, the– EUR per capita 17.40 24.63 31.37 28.7 31.08 33.09 35.16 38.27 40.00 41.29 Insurance sector will beExchange rate benefitedUS$/EUR 0.80 0.80 0.73 0.68 0.71 0.73 0.75 0.79 0.80 0.80 from the sameINR/US$ 44.01 45.18 41.17 43.4 47.54 45 41.75 39.7 39.05 38.55
  • Favorable Government Regulations“For the industry to grow in the future, it is imperative for thegovernment to look at enhancing the foreign directinvestment (FDI) limit to 49% from the present level of 26%and also allow foreign reinsurance companies to set upbranch offices in India” - IRDA Chairman J. Hari Narayanan
  • New Trends Emergence of New Distribution Channels Launch of Innovative Products Direct Selling Agents General Health ULIPs Insurance Insurance Products Agents such as • New Products • Innovative • Family Type NGOs in rural Brokers have attracted products in Insurance areas customers Fire, Hull, Mot cover etc. can or etc, are be covered launched with various riders Corporate Online Agents such as Distribution NBFCs Use of Information Technology Tap the growing MarketOnline Distribution of Insurance Products  Growing Automobile Sector in IndiaBack End Support  Thrust in Micro Insurance and healthCustomer Support InsuranceFeed back  Growing Logistics Industry In India
  • Challenges faced by Re Insurance Industry • Wide difference between the rates Premium rates in India range required by the international between .18%- .25% inDifference in reinsurers and those charged by comparison to .3%-.5% in Rates the domestic insurers leading to foreign markets the price affordability as an issue Ceded Business usually in range of 30%-40% • It has depended mainly on the Low domestic market understanding out of which a major portion (2/3rd) isCompetitive and basing probability of business ceded to GIC Re ceded rather than on underwritingEnvironment and risk information criteria • Country regulators face challenges • Computerization of in policy formulation for creating a administration and Policy market that develops and keeps settlement of accounts confidence of the industry and for in respect of all inter-Formulations keeping international trade company transactions regulation intact. • Redesigning and revamping various insurance products and processes is taking place
  • Emerging RisksEconomic Environmental Technological Societal Critical Rising Oil Global Information Diseases Prices Warming Infrastructure Currency Nano Earthquake Wars TechnologyDemographic Storms and Shift Floods
  • Risk Measurement – ROL Index  Declines of 10 and 6 percent in 2007 and 08 respectively  Recovery of 6% in 2009, still not recovered fullySource: Guy Carpenter & Co. LLC Impact of Risk Insured losses of 13.9 billion USD from hurricanes Gustav and Ike  Shareholders’ equity fell 18 percent
  • Reasons for lack of foreign insurers in Indian market Minimum High Rating Retention Rate Compulsory 10% cession to GIC Re & Inadequate cession maximum of 10% cession to a Rates foreign player reduces opportunity for foreign players  Global reinsurers feel that rates for reinsurance products are inadequate and not at all reflective of global market conditions.  The regulations also require that any reinsurer used must have a minimum rating of BBB from Standard & Poor’s, or a similar international rating organization.  Compulsory cession in India – 10% cession of the loans have to be offered to GIC Re before it can be offered to other reinsurers  Cessions to any one foreign reinsurer may not exceed 10% of total overseas cessions.  As a result of the policy to maximize national retention most of the premium is tried to be retained in India leading to overall retention rate of 70 %
  • FDI Destinations Worlds Most Attractive Locations China 10 6 7 7 India is the 52 India second most 11 favorable 12 United States destination in the world 22 for FDI in Re Russia 41 Insurance Sector 36 Brazil Source: UNCTAD 2009 FDI Plans by Foreign Affiliates in host countries for 2007-2009 41 % of the r 45 respondents 40 e 35 are bullish s% p 30 25 about the to o s 20 increasing n 15f d 10 FDI e 5 investments n 0 Reduce Reduce Stay the Increase Increase all over the Considerably Somewhat same somewhat Considerably world
  • Benefit of Increasing FDI Limit High Risk Pooling Min. Reinsurance Wider among Investment Rate due to Market existing requirement decreased Reach players rates FDI limit proposed to increase from 26% to 49% May increase chances of Foreign players entering Indian Market but most of issues still unsolved Joint venture still required with domestic partner needed to invest in $23 million (51% of $45 million) Cessions to GIC as well as regulation of not more than 10 % to a single foreign Insurer still there Better solution is to allow Branching of Foreign Reinsurers. Its benefits are: o low-frequency, high-severity events can have the full financial backing of the parent companies. o With a fully-owned subsidiary, the parent company will not be liable for the risk of the creditors. So, Only way to protect against the risk is to allow for branching of reinsurers
  • Foreign Investors in India Benefits of opening up Barriers with regards to Foreign Reinsurance sector for foreign Reinsurers in India Investors Additional capital available to cover  Effective prohibition on cessions risk of projects with large capital abroad. Insurance law makes it Relieving Indian insurers of partial or mandatory to place the business entire risks that are too large for their within India before reinsurance can own capital base be taken out with foreign reinsurers. The presence of international  Only allowed to set up reinsurers will transfer international representative offices but not know-how to the local market and operational offices under Indian Law provide Indian insurers with proven international expertise in assessing complex risks and handling large, complex claims.
  • Implications of more foreign Players for GIC Re FINANCE MARKETING Heavy capital flow in the industry Foreign Tie Up can be fruitful for GIC as  More competition may ask foradditional capital can be used to improve aggressive B2B marketing strategiesdistribution systems, IT, better commissions  More Commissions may to be It may also lead to Price Wars and the Re shelved offInsurance rates (already low in the Indian  Profit margins may decrease asmarket) may further plummet down overhead expenses will rise KNOWLEDGE TECHNOLOGY  At present, the actuarial knowledge Improved Technology can be gained in India is below the global standardsthrough mutual transfer if GIC partners  Global players will bring that partwith a global player along Improved technology means  Better actuarial valuations will implyincreased efficiency which in turn will correct estimation of premiums andgive higher profits underwriting gains/losses
  • Success story of Munich Re • Reduced dependency on the stock market fluctuations Hedging • maximizing value added, managing underwriting profitability to at least 15% return on risk adjusted capital and achieving a combined ratio of 97% over the cycle • Cycle management strategies include unbiased valuation of risk andActive Cycle price (deviation from underwriting guidelines requires dispensation), leveraging competitive position, develop less cyclicalManagement segments and canceling unprofitable business • Munich Re is developing new insurance products that will address exposures against cyclicality, supply chain, reputation, political risks, emission trading, residual value, weather, pandemic, and business Innovation interruption caused by other than direct physical loss
  • Qualities that a Reinsurer should have Qualities in a reinsurer Risk Management practices others Additional services offered Local presence Consistency of strategy People Consistency of risk appetite Technical knowledgeContinuity of offer through the market… Financial strength 0.00% 20.00% 40.00% 60.00% 80.00%
  • GIC Re- Key Success Factors KEY Success Factors to be Remarks Attractive managed ness Strong Product - The product portfolio is Portfolio diversified 5 - Need to have more of voluntary rendition than mandated Limited Business - For Existing customers & NewProducts/ Development customers both Domestic and 4Services Foreign Limited Product - Investments in Actuarial 4 Development Development Insurance - Scope of Insurance across Development various verticals in India 4 4.3 DistributionDistribution / Small Clusters Across - Setting up more branch Offices for reach 5Sales Industry across the country Strong TIE Key Partnerships - Forging relationship partnerships Ups to increase the market 4 Export Expansion in Market Attractive New Access Investment in Verticals Long Run Strong Market 26 Potential
  • Identifying Strategies for GIC Re Current Strategy New Initiatives suggested• Overseas Expansion Policy- 44% share in its • Enter Expertise Reinsurance which is the total business expected to Reach 50% by the growing segment in Indian insurance market end of 2012 with foreign companies like Hiscox entering the market• Looking to become a major Reinsurer in Afro Asian Market by acquiring other smaller firms • Improve top broker relationships through out the world by Senior level global and regional• Planning to set up a $500 million pool for summits, identifying and overseeing execution natural catastrophes in Asia and Africa of joint strategic growth and service initiatives• Expanding its international footprint by • Can enter into two way agreements with major opening offices in Brazil, Malaysia and South reinsurers who are looking for entry in Indian Africa. Currently, the corporation has branch market to enter into growing Eastern Europe offices in London, Dubai and Moscow and latin American markets• Tie up with Hannover Inc in 2008 under which • Innovative products like ILS (insurance linked the two organisations will work for joint strategies) are the need in world market due to development, marketing and underwriting of falling interest rates and excess capital life reinsurance business in India
  • Model for Identifying key drivers Quadrant 1: Accident HIGH GROWTH / Property and Marine HIGH VOLUME Health Liability Professional Quadrant 2: Indemnity Low GROWTH / high VOLUME 2 Auto 1 Industry 4 3 Quadrant 3: Cement High GROWTH / low Aviation Micro VOLUME Insurance Quadrant4: Low GROWTH / low VOLUMESource of the model: Lloyds Report
  • Strategy relating to maintain market shareUSPs of GIC Expertise to do Re • Tap on High Growth High Business Industries Insurancebusiness in Industry • MOU can be signed between GIC and insurers who are the market leaders of insurance of HGHV business India Specific General Insurance Corporation • Micro Insurance sector is still under developed, with huge potential. Special emphasis can be laid on that. (GIC Re), the state-owned national reinsurance Compulsory company, has acquired the cessation by distinction of being the only • Partnerships can be made with foreign insurers in specific non life areas similar to the one which is existing with Hannover Re reinsurer among significant insurers Partnerships players worldwide to report • Partnerships with insurers in India should be undertaken. GIC has a strong distribution network that can be leveraged upon profits in `08-09. and alliances can be made. High -- Economic Times Profits,thus capital availability Additional and set • Additional Investments has to be made to do aggressive Network Investments marketing, improve distribution systems etc.
  • Identifying Strategies for GIC Re Micro-Insurance sector in India Industry Factors Growth Drivers• ` 80 billion market • Integrating the micro-insurance with the poverty• Insurance penetration of 4% only alleviation programmers of various state governments.• 78% population still does not have • Development of rural health insurance regulations and access to Insurance products & services growing awareness• Major players are NABARD, SKS • As demand for micro insurance grows considerably, microfinance, ICICI prudential life micro insurers will need reinsurance to increase insurance, Bajaj Allianz and LIC along capacity and meet financial and regulatory with many NGOs requirements.• Major concentration in south India • Helps minimizing the effect of abnormal attritional or owing to growing availability of micro catastrophic losses, which could threaten a micro insurance in the region insurers financial stability. Strategy to be adopted• GIC can partner with LIC to distribute their micro-insurance products as well• Low value products given to people with weak credit standing they are more susceptible to credit risk & offers a huge market for Reinsurance business• Can leverage its knowledge and experience from developed markets for guidance in establishing proper administration of the products of micro insurer
  • Identifying Strategies for GIC Re Health Insurance sector in India Industry Factors• Total Expenditure on health in India is Market size (Rs Crores) nearly 6% of the entire GDP 8000• Government spending is less than 25% against the average spending of 30-40 6000 % in other developing countries. 4000• Indian health insurance industry 2000 stands at INR 5,125 crores with only a small Section of the total population 0 (around 2%) being covered so far.• CAGR of around 35 % Key Issues Reinsurance & strategy to be adopted• Limited Influence over healthcare • Penetration of reinsurance increased over the delivery mechanism years to high claim ratio in Indian market• High claim ratio • Foreign players such as Munich Re planning to• Low level of consumer awareness venture into this business• Limited product development • High premium rates demanded by foreign players• Reinsurers face biggest challenge of due to high risk so GIC Re command market share limited data availability with low prices • Tie ups with national Insurers like LIC etc
  • E business in Reinsurance• Huge potential for streamlining processes in facultative coverage like underwriting, contract and claims management• Different electronic transaction stages creates additional value for customers and generates a competitive advantage for the company• On-line purchase of insurance is on the rise and premium payment through mobile phones is now possible. Development if E Business in facultative reinsurance
  • Action Plan Operations FY1 FY 2 • Increase in Branch Network • Smoothening of the entire process • Reaching out to forge key delivery • Quality Certifications to increase Operations mechanism ratings and Foreign Entities comfort level •Product development and increased • Launch of innovative products for knowledge sharing with other Micro inclusion for burgeoning African Product developed foreign companies Market • Competitive rates •Raising capital for expansion in Branch • Actuarial learning expenses Finance Networks • B2B Marketing Initiatives • Educating people about Insurance • Setting up Key Point of Contacts (KPC) and tie up to increase the growth of Marketing / with companies to increase customer IndustryCommunication service • Training for development of skills for • Recruitment of employees for new employees branches HR • Training of Employees for the Regulatory Compliances 33
  • References• www.thehindubusinessline.com• www.livemint.com• www.irda.org• data monitor reports• ESIC Database• economictimes.indiatimes.com• Annual report of GIC• GI Re News• Insurance Law Regulations in India by Nishith Desai Associates• Hannover Re Report• Societies of Actuaries Report• US Reinsurance Regulation report• Paper on Indian Insurance Industry by Institute of Insurance and RiskManagement• Potential and Prospects of Micro Insurance in India; UNDP ,Regional Centreof Human Development Unit 2009,• Mckinsey Report on Health Insurance in India 34