1. NATIONAL CONFERENCE ON FINANCE
AND ECONOMICS 2016
Jaipuria Institute of Management
Lucknow, India
SONJAI KUMAR,
Vice President- Business Risk
Aviva India Life Insurance
Disclaimer: Views expressed in this presentation are mine and not
necessarily of my employer
1
December 9-10, 2016

2. AGENDA
1. Purpose of Conference
2. Relationship Between Economy and Insurance
Sector
3. How does international risks may impact Indian
Economy and Insurance Sector
2

3. PURPOSE OF THE CONFERENCE
 Promote research and development in the field of
Economics and Financial domain.
 Bring together researchers, practitioners,
policymakers on the same platform on the issues
related to economics and finance
3

4. FINANCE AND ECONOMICS
 Close inter-dependence between economy and financial
domain
 Very apt topic for the for research to identify the key
dependencies of economic parameters on financial
institutions help creating fore-warning system to take
proactive action in managing the emerging risks
 2008 economic crisis suggests a close linkages between
financial institution and economy, Post crisis economic
situation reflects led to severe recession completing the
circular loop of dependencies
4

5. RELATIONSHIP OF ECONOMIC PARAMETER
AND INSURANCE SECTOR
Macro
Economic
Parameters
Insurance
Sector
Improves
Employment
Generates income
Growth in GDP
Increase
Domestic Savings
Increase
Disposable
Income
Capacity
to pay
Premium
Customer
5

6. RELATIONSHIP OF ECONOMIC ACTIVITY AND
INSURANCE SECTOR
Macro Economic
Parameters
Insurance
Sector
Growth in GDPIncrease
Disposable
Income
Capacity
to pay
Premium
Support
Capital
Market
FDI increases more
insurance players
and so more money
into capital market
Generate long
term investible
fund and improve
GDP
Customer
6

7. DEMONETIZATION- ECONOMIC IMPACT
7
Short Term:
• Fall in Demand, leading to adverse impact on GDP
• Job Market- Retail sector, Consumer goods, Real Estate etc
• Fall in interest rate, trend started ( BoB and BOI 5 bps-20bps)
• 2017 Budget would critical for growth trajectory of economy
Medium Term:
• Depend on what trajectory the Country takes post budget
• If fiscal deficit remain controlled together with increased liquidity,
interest rates will further come down
• This will push the investment leading to positive impact on equity
market
• Otherwise, sustained low demand, Stagnant interest rate, Job
market adversely impacted
Long Term:
• More revenue to Government and positive impact through taxes-
more disposable income
• Increase in volume of business due to Cash less transactions,
• More stable inflation within band of 4% plus/minus 2%
• Lower interest rate depending on how inflation behaves

8. IMPACT OF ECONOMIC AND DEMOGRAPHIC
FACTORS ON INSURANCE SECTOR
Macro Economic
Factors
Insurance
Sector
Interest
Rate
Inflation
Equity
Market
New
Business
Profit
Low interest rates
increases the cost of
guarantees
Impacts cost of products
Increase in Expenses of
the
Up movement in Equity
market moves customers
away from Insurance to other
investment opportunities
Persistency
8
Business Impact
Increase in inflation rate
negatively correlated with
Premium income decreasing
persistency
Increase in interest rate
negatively correlated with
increase in Premium
income

9. SHORT TERM IMPACT ON INSURANCE SECTOR
9
Business Impact
• New Business Premium may go down due to the cautious
approach of new customers
• Persistency may decrease as policyholder may like to hold cash in
account
• Overall premium growth in 2017 may go down
Risks to insurance companies in view of low interest
• Par products Managing bonuses in line with PRE
• Meeting Guarantees under non-par
• Reinvestment risk
• Future premium invested at lower rate
Shareholders impact
• Impact shareholder’s profit, low interest rate- higher reserves-
impact on margins
• Re-pricing is an option, may make product unattractive losing new
business

10. MEDIUM TO LONG TERM IMPACT
10
Business Impact
• New product design in view of low interest rate, may be moving more towards
protection business
• New modes of distribution coming up such as mobile and more online
products
• With more economic activity, buoyant equity market may re-infuse ULIP
products
Risk Management
• Managing through re-pricing of products
• Companies moving away from guaranteed product
• Increasing efficiency to extract margins
• Low cost distribution model through mobile/internet
Shareholders impact
• Margins continues to be challenge , extracting profit from efficiency and
expense rationalization

11. IMPACT OF GLOBAL RISKS ON INDIAN
LIFE INSURANCE COMPANIES
11

12. TOP FIVE GLOBAL RISKS
12
Risks
Risk Category Likelihood Impact
Geo-political
Interstate conflict with
regional consequences
Weapons of mass
destruction
Failure of national
governance Interstate conflict with
regional consequences
State collapse or crisis
Environmental Extreme weather events
Failure of climate-
change
adaptation
Economic
High structural
unemployment or
underemployment
Societal
Water crises
Rapid and massive
spread of infectious
diseases
The top five global risks (Economic, Environmental, Geopolitical,
Societal and Technological) exposure are highlighted by World
Economic Forum (“WEF”) every year since 2007
No Technological risks have been identified during 2015

13. IMPACT ON INDIAN ECONOMY THROUGH
GEOPOLITICAL RISKS
 Decrease in exports impacting GDP
 Crash of equity market
 Increase in inflation
 Impact on interest rate
 Polarization of world political landscape impacting entire
economy and development of the country
13

14. IMPACT ON INSURANCE INDUSTRY
 Reduction in New Business Premium
 Higher/Mass surrenders
 Lower capital generation affecting expansion
 Interest rate risk leading to mismatch between assets and
liability
 Very high claims if weapon of mass destruction is used
 Liquidity drying up
 Defaults in corporate Bonds due to unable to manage
sustainable growth
 Reinsurance default due to impact in the global
market/parent country
14

15. RISK MANAGEMENT
 Assess the risks applying sever stress test on following risks
parameter to assess capital resources required to meet
liabilities:
 Lapses
 Interest rate
 Inflation
 Liquidity
 Mortality
 Plan the management action to meet the crisis arising from
results of stress tests
 Monitor the emerging risks and report to the Board on
emergence of any early warning indicators
15

16. IMPACT ON INDIAN ECONOMY THROUGH
ENVIRONMENTAL RISKS
 Environmental risk is expected to arise from
 extreme weather condition,
 failure to adapt to the climate change,
 natural catastrophe,
 biodiversity loss & ecosystem collapse and
 manmade environmental catastrophe.
 Impact on India, as the country is still dependent on the monsoon rain,
any extreme weather condition likely to impact on the ability to grow food
leading into dependence on buffer food stock resulting into immediate
increase in inflation and affecting interest rate.
 Catastrophe event likely to increase both death and sickness claims.
Environmental risk may increase following key risks for the insurance
companies
 Inflation and interest rate
 Mortality and Morbidity
 The risk assessment for this risk can be performed through stressing
economic and demographic risk factors together to assess worst
possible scenario. To manage risk action plan may be drafted to take
preventive measures should event unfold.
16

17. IMPACT ON INDIAN ECONOMY THROUGH
GLOBAL ECONOMIC RISKS
Key risks :
 unemployment and underemployment,
 Fiscal crisis,
 asset bubble,
 failure of financial mechanism or institution,
 energy price shock,
 deflation, failure of critical infrastructure and
 unmanageable inflation as key risk events.
Impacting insurance industry through
 slide in equity market,
 interest rate movement (both up and down) and
 increase in inflation.
17

18. IMPACT ON INDIAN ECONOMY THROUGH
SOCIETAL RISKS
 Key risks under this category
 Spread of infectious disease leading to pandemic both at country
level and at international level.
 Ebola virus; in the past spread of H1NI virus have been seen.
 Spread of such virus cannot be ruled out leading to large number
of morbidity and mortality claims.
 For such event large stress test on mortality or morbidity in
the range of 200% to 300% of base mortality/morbidity
assumption.
 Management action
 Monitoring
18

19. THANKS
19

20. GDP GROWTH RATE
20

21. INSURANCE PENETRATION
Not enough compared to
developed countries which is
around 10%
21

22. INSURANCE DENSITY
0
10
20
30
40
50
60
70
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
11.5
14.7 16.4
19.7
22.7
38.4
46.6 47.4
54.3
64.4
59
53.2 52
55
Insurance Density (USD)
22

23. INCREASE IN EMPLOYMENT- EMPLOYEES AND
AGENTS , FIGS IN LACS
0.0
5.0
10.0
15.0
20.0
25.0
30.0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
1.5 1.9 2.5 2.9 3.0 3.4
2.5 2.5 2.4 2.5 2.5
14
20
25
29
30
27
23.4
21.2 21.6
20.43 20.16
No. of Employees No. of Agents
23

24. PREMIUM INCOME
-
50,000
100,000
150,000
200,000
250,000
300,000
350,000
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
1st Yr Premium Existing Business Total Premium
11%
9%
11%11%14%
14%
15%
17%
12%
10%
7%
4%
2%1%
% indicates Share of Private Sector
Cr
24

25. GROSS DOMESTIC SAVINGS AS A % OF GDP
Definition of 'Gross Domestic Saving' Definition: Gross Domestic
Saving is GDP minus final consumption expenditure. Gross Domestic
Saving consists of savings of household sector, private corporate sector
and public sector.
25

26. DISPOSABLE INCOME
Disposable Personal Income in India increased to 138192890 INR Million
in 2015 from 127880080 INR Million in 2014
26

27. FDI IN INDIA
FDI in India increased by 1547 USD Million in May of 2016. FDI in India
averaged 1153.89 USD Million from 1995 until 2016, reaching an all time
high of 5670 USD Million in February of 2008 and a record low of -60 USD
Million in February of 2014.
27

28. ASSETS INVESTMENTS (CR)
-
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
2,000,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Equity (Market Value) Fixed Income (Book Value) 28