J UNE 14 2013 J UNE 14, 2013 R R EINSURANCE REGULATIONS : I MPACT - - PowerPoint PPT Presentation

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J UNE 14 2013 J UNE 14, 2013 R R EINSURANCE REGULATIONS : I MPACT - - PowerPoint PPT Presentation

Oct 22, 2023 369 likes •729 views

I NDIA F ELLOWSHIP S EMINAR J UNE 14 2013 J UNE 14, 2013 R R EINSURANCE REGULATIONS : I MPACT ON I RISKS IN THE I NDIAN L IFE I NSURANCE MARKET Guide: Rajesh S L Lead Presenter: Balaji Ravi d P B l ji R i Support Presenter: Devadeep Gupta

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SLIDE 1

INDIA FELLOWSHIP SEMINAR JUNE 14 2013 JUNE 14, 2013 R I REINSURANCE REGULATIONS: IMPACT ON

RISKS IN THE INDIAN LIFE INSURANCE MARKET

Guide: Rajesh S L d P B l ji R i Lead Presenter: Balaji Ravi Support Presenter: Devadeep Gupta

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SLIDE 2

Agenda g

Need for reinsurance Prevailing regulatory scenario 2013 regulations 2013 regulations Implications Summary

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SLIDE 3

Agenda g

Need for reinsurance Prevailing regulatory scenario 2013 regulations Implications Summary

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SLIDE 4

Need for reinsurance

HEDGE AGAINST Claims volatility ACCESS TO EXPERTISE Product development Parameter risk Exposure to large risks C i f i k Data Contract design U d i i li Concentration of risk Underwriting policy Capital efficiency Smooth annual returns

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SLIDE 5

Agenda g

Need for reinsurance Prevailing regulatory scenario 2013 regulations Implications Summary

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SLIDE 6

Agenda g

Need for reinsurance Prevailing regulatory scenario 2013 l 2013 regulations Implications Summary

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SLIDE 7

Prevailing regulatory scenario g g y

Insurance Act 1938:

  • Insurers to reinsure specified minimum

Insurance Act, 1938: Section 101 (Reinsurance)

  • Insurers to reinsure specified minimum

proportion of Sum Assured on each policy with Indian reinsurers

  • Indian reinsurer – Company granted a

certificate of registration under sub section (2A) of section 3 (2A) of section 3

  • No upper limit on reinsurance cession

specified

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SLIDE 8

Prevailing regulatory scenario g g y

Life Insurance IRDA Life Insurance

  • “Programme of reinsurance” to be certified

Life Insurance – IRDA Life Insurance (Reinsurance) Regulations, 2000

  • Programme of reinsurance to be certified

by Appointed Actuary

  • IRDA to scrutinise this programme,

p g ,

  • Request further information,
  • Suggest changes, if necessary
  • Principle based approach to reinsurance
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SLIDE 9

Prevailing regulatory scenario g g y

Other considerations for an actuary

  • IRDA Appointed Actuary Regulations 2000

Other considerations for an actuary to consider

  • IRDA Appointed Actuary Regulations, 2000
  • IRDA Assets, Liabilities and Solvency Margins
  • f Insurers Regulations, 2000

g ,

  • Actuarial Practice Standard 1, IAI
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SLIDE 10

Agenda g

Need for reinsurance Prevailing regulatory scenario 2013 l 2013 regulations Implications Summary

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SLIDE 11

Agenda g

Need for reinsurance P ili l i Prevailing regulatory scenario 2013 regulations 2013 regulations Implications Summary

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SLIDE 12

Areas covered

Maximize Maximize retention in India Simplify administration Develop capacity Objectives p y Eliminate Best i f Eliminate “fronting” protection for costs incurred

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SLIDE 13

Areas covered

  • Section 4: Programme of reinsurance

Section 4: Programme of reinsurance

Preparation

  • Documentation of reinsurance arrangements as prescribed
  • Mitigation of catastrophe risks, including disaster scenario testing
  • C

dit d t ti i k th i iti ti Preparation • Credit and concentration risks, their mitigation

  • Sign-off by Appointed Actuary

Sign-off g y pp y

  • Approval by Board of Directors

S b A h Review

  • Scrutiny by Authority
  • Modifications suggested
  • Lesser credit in demonstration of solvency
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SLIDE 14

Areas covered

  • Section 5: Retention policy

Section 5: Retention policy

Aims Formulation Justification Build retention i i hi Suitable Emerging claims capacity within company retention policy for each product/risk Emerging claims experience Financial Maximise premium retained in India Restrictions on quota share Financial standing Underwriting capacity q capacity

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SLIDE 15

Areas covered

Section 6: Regulatory reporting requirements Section 10: Inward reinsurance business Product category-wise retention limits increasing ith f with age of insurer/product Board of Directors made responsible in addition A i d A Retentions below prescribed limits to be justified by providing to Appointed Actuary further information

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SLIDE 16

Areas covered

Underwriting process g p Claims experience Current retentions Financial Strength Financial Strength Volume of business Retention levels Capital Requirements Past payment history Past payment history Capacity building measures

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SLIDE 17

Agenda g

Need for reinsurance P ili l i Prevailing regulatory scenario 2013 regulations 2013 regulations Implications Summary

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SLIDE 18

Agenda g

Need for reinsurance P l l Prevailing regulatory scenario 2013 regulations Implications Summary

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SLIDE 19

Implications- Insurers p

Review of reinsurance

  • Management and shareholders to share

Review of reinsurance arrangements by the Board

  • Management and shareholders to share

responsibility

  • Management information and reporting

g p g systems need to be put in place

  • Board needs to understand the risks and their

iti ti mitigation measures

  • Need to build understanding among non-

executive directors executive directors

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SLIDE 20

Implications- Insurers p

Focus of regulations – “building

  • Building capacity in isolation will not mitigate

Focus of regulations building capacity”

  • Building capacity in isolation will not mitigate

all risks

  • Reinsurance not needed solely against

y g parameter risk and claims volatility

  • Regulations silent on commercial

id ti f i considerations for reinsurance

  • May lead to sub optimal use of capital
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Implications- Insurers p

S l f

  • Definition of “Indian reinsurer”

Supply of reinsurance Definition of Indian reinsurer

  • Eligibility of multinational reinsurers
  • Monopoly power?

p y p

  • Increase in concentration risk
  • Reduction in benefits of geographical

di ifi i diversification

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SLIDE 22

Implications- Insurers p

Price of reinsurance

Factors driving increase in price Factors driving decrease in price

Competitive market for Diseconomies of scale – higher High retention - significant volumes reinsurance High retention – small g

  • verheads

significant volumes

  • f “select“ risks

reinsured small, undiversified ceded portfolio

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SLIDE 23

Implications- Insurers p

Reinsurer as an enabler of product innovation

Online Term Insurance Long term health insurance Setting/Review of rating factors Competitive Access to reinsurer data g Credibility of reinsurance rates reinsurer data Sharing of parameter risk population data Access to reinsurer’s Contract design and underwriting Reliance on reinsurers’ expertise underwriting policy experience

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Implications- Insurers p

I t d t d i

  • Hardening of premium rates

Impact on product design g p

  • More stringent underwriting
  • Risk aversion in contract design
  • Risk aversion in claims control
  • Investment in capacity building – increase in

costs costs

  • Will insurers start sharing experience?
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SLIDE 25

Implications - Reinsurers p

Definition of “Indian reinsurer” Indian reinsurers will have to build and demonstrate

capability in all lines of business.

May promote development of indigenous

reinsurance sector

Need to understand risks Capital intensive nature of business Gestation period Gestation period Acquisition of expertise

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Implications - Policyholder p y

Impact on current products priced assuming Impact on current products priced assuming

prevailing treaties

Cover may become expensive Cover may become expensive Exclusions in policy terms and conditions may

increase increase

Proposal underwriting may become stringent Protection against some risks may no longer be Protection against some risks may no longer be

available

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SLIDE 27

Implications - Macroeconomic p

Consistency with government/regulator’s objective

y g / g j

  • f increasing insurance penetration

Impact on India’s image as an investment friendly

destination?

Implications for other economic reforms – (FDI in

i ) insurance)

Higher retention within India to flow back into the

economy having an effect on GDP growth? economy, having an effect on GDP growth?

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Agenda g

Need for reinsurance P l l Prevailing regulatory scenario 2013 regulations Implications Summary

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Agenda g

Need for reinsurance l l Prevailing regulatory scenario 2013 regulations Implications Summary

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Impact on risks p

Parameter risk Large risks Contract design Claims Operations Claims volatility risk Operations risk Catastrophe risk

Impact Type of risk

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SLIDE 31

Impact on product types p p yp

Group Term Long term health d d l health Individual term Savings

Impact Retained Sum at Risk Type of product

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SLIDE 32

Impact on company strategy p p y gy

Business plan Supporting initiatives

Change in product strategy Systems and control processes Change in channel strategy Governance structure for Board reporting Change in risk rates Impact on capital Data warehousing and analytics infrastructure Impact on capital adequacy Sharing of data?

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SLIDE 33

Agenda g

Discussion

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SLIDE 34

IAIS ICP 13

Prudent approach to Choice of reinsurance Principles

Purchase of A commercial decision made by Cedant to assess the risk profile - experience reinsurance decision made by management experience, expertise and solvency position Management of risk associated with purchasing Within the overall reinsurance strategy of the Reinsurance decision in line with its operating p g reinsurance gy insurer. p g strategy.

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SLIDE 35

Prescribed retention limits

Rs lakh

Product Type Age of the insurer/product/risk (Years) 0 3 4 7 8 11 12 15 0- 3 4 - 7 8 - 11 12- 15 Pure protection products 5 10 15 20 p Savings products 10 20 30 30 Group protection 5 10 15 20 Group protection 5 10 15 20 Health insurance 1 3 3 4