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5th - 11th December 2014

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{{INSIDE THE ISSUE Insurance Industry News Pg. More amendments likely to the Insurance Bill - The Hindu Business Line

Industry 1 The Select Committee on the Insurance Bill is expected to propose four amendments to the Bill, including IRDA Reg 4 enhancing the minimum capital for health insurance companies and compulsory provision by insurers for agent commissions. The Committee completed its discussions on all clauses of the Bill and, at a meeting held Life 4 here on Wednesday, decided to submit its report two days ahead of its December 12 deadline.

Health 5 Health cover Reinsurance 6 The panel, headed by BJP leader Chandan Mitra, may also suggest enhancing the minimum capital for health insurance companies from ₹50 crore to ₹100 crore. It is also recommending that fresh shares should be Global News 7 issued during the sale of shares of Indian companies to a foreign owner so that FDI helps in capital 6 enhancement. Another idea is to make a compulsory provision for commissions to be given to agents by insurers.

“This is to help lakhs of insurance agents in the country,” a panel member told BusinessLine.

The Committee wants the report of independent surveyors to be made mandatory for settling the claims over Rs 20,000 — a provision that was part of the original Bill. The Committee is, however, likely to add that as the rate of Rs 20,000 was decided much earlier, the IRDA may prescribe a new limit in this regard.

“The panel has sought the assistance of the Finance Ministry, the Law Ministry and SEBI to include this amendment to the Bill we are going to table in Parliament,” the member said. The Committee witnessed a heated debate on submission of the report as the Opposition members insisted they needed more time to Source study the draft report, which is likely to be circulated on Friday. The Chairman, however, said the panel had a deadline to adhere to, and the members could submit dissent notes along with the report. Back

Insurance Bill: Congress changes tack, toes Centre’s line - The Hindu Business Line

The ruling (BJP) succeeded in limiting the dissent notes to the Select Committee’s report on the Insurance Bill to four, as the Congress, AIADMK and Bahujan Samaj Party (BSP) decided to toe the Government’s line.

Four parties — the CPI(M), Trinamool Congress, Janata Dal (United) and Samajwadi Party — have submitted dissent notes to the panel’s report recommending an increase in the foreign direct investment (FDI) limit in the insurance sector.

The panel, headed by BJP MP Chandan Mitra, has asked the Centre to define the term ‘control’ in the Bill. It suggested that an explanation be added in the Bill that “the term ‘control’ shall include the right to appoint a majority of the directors or to control the management or policy decisions, including by virtue of their shareholding or management rights or shareholder agreements or voting rights”.

“We felt that there should be clarity on the issue of control. The control of the companies should remain with Indians,” a panel member said. The Select Committee, which makes recommendations to the House, will table its report on Wednesday. The Bill is likely to be taken up next week. Insunews – weekly e-Newsletter

With the Congress offering its support, it will be easy for the Government to pass the Bill. Later, Finance Minister Arun Jaitley told a trade delegation from the UK that he is hopeful that expansion of the insurance market will take place once the Bill is passed. He expressed his “sense of satisfaction” over the recommendations made by the Select Committee. The committee rejected the demand of Opposition parties to not increase the FDI limit from the existing 26 per cent.

“In view of the increasingly globalised economy and expanding global financial flows, involving manufacturing,

banking etc for growth and development, the Committee is not in agreement with the argument of not

increasing the cap in the insurance sector…” the report said. It, however, urged the Centre to limit FDI and all

portfolio investments to 49 per cent. The Opposition parties accused the Congress of taking a U-turn from its Source stated position against the foreign institutional investor route.

Back

Report on insurance Bill to be tabled in RS today - The Financial Express

The Parliamentary Select Committee report on the Insurance Laws (Amendment) Bill is likely to be tabled in the on Wednesday. The panel is learnt to have agreed with the government on a 49% composite foreign investment cap (including FDI and other foreign investments including FII) in the insurance sector with full Indian management and control through the Foreign Investment Promotion Board (FIPB) route.

Next week, the government is likely to move the bill for Rajya Sabha’s consideration. Expressing satisfaction over the recommendations made by the Parliamentary panel, finance minister Arun Jaitley has said the insurance market expansion would take place once the Bill is passed by Parliament.

The report could feature dissent notes from CPI-M, Trinamool Congress, Samajwadi Party, and JD(U) — in Rajya Sabha on Wednesday. The four parties are against raising the FDI ceiling in the sector from the current 26%. In the 245-member Rajya Sabha, those members backing the Bill are in a minority compared to those opposing it.

The Bill envisages, among other things 49% foreign investment (composite cap including FDI or FII or a combination of both) in the sector. As per the current norms, foreign investment by way of FDI, investment by FIIs/FPIs and NRIs up to 26% under automatic route is permitted in the sector.

The country’s insurance sector needs capital of around $12 billion up to 2020. Increasing the foreign Source investment cap to 49% is expected to lead to foreign investment of around $3 billion immediately, most of it in life insurance sector. Back

Insurance bill can hike no of claim rejections -

Discussion on the insurance amendment bill has centered on the increase in foreign direct investment ( FDI). However, a lesser known provision in the bill could end up increasing the number of claims rejected by insurance companies as it allows them to turn down claims on grounds of non-disclosures even if the omissions were not material to the claim.

The key amendment which impacts policyholders adversely is the one which seeks to do away with the differentiation between inaccurate statements and concealment done due to inadvertence or lack of

awareness and those which are made deliberately with intent to deceive. This amendment pertains to Section

45 of the Insurance Act which is sought to be changed by clause 58 of the insurance bill.

Former chairman of Life Insurance Corporation of India S B Mathur, who appeared before the select committee headed by Chandan Mitra to look into the bill, had pointed out five major areas of concern that affect consumers. The other four areas are repudiation on grounds of fraud, accountability of agents and onus of proof, refund of premium paid and retrospective applicability of provisions.

Under the existing act, an insurance policy cannot be called into question after two years of issue. Under the

amendment, insurers can repudiate a policy for a period of three years after the policy was issued. Incidentally, the three-year time limit has now been extended for repudiation on grounds of fraud.

"On one hand, genuine claimants can be deprived of a genuine claim that takes place within three years if they have made inadvertent mistakes. At the same time, by extending the three-year limitations to frauds, the rules

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allow a fraudster to make a claim after three years," said Mathur. Some of the private insurers have much higher levels of repudiation - around 20% by number and around 28% by amount - according to data published by IRDA.

The third discrepancy in the new bill is that it holds the insured responsible for any fraud conducted by the

insured or his agent. This goes against insurance regulation in India, which deems agents to be

a representative of the insurance company.

The other provision that could hurt policyholders is the provision in the amendment which places onus of disproving lies upon the beneficiaries, in case the policyholder is not alive. "Since allegations of fraud will be in Source early claim cases, the beneficiaries are likely to be a young wife with small children. Is it fair to take away the responsibility of proof from the insurer and dump it on a young grieving family?" asked said Mathur. Back

Insurance Bill: Select panel tables report in Parliament - The Hindu Business Line

The Insurance Bill in the Rajya Sabha here on Wednesday. While the Congress, BJP, BSP, AIADMK and Shiromani Akali Dal supported the Bill, the CPI(M), SP, JD(U) and Trinamool Congress submitted dissent notes to the report.

The Government is likely to bring the Bill for passage in the ongoing session. The panel, headed by BJP leader Chandan Mitra, also submitted an amended Bill along with the report. The Bill has about a dozen amendments. The committee has said in its report that increasing the foreign direct investment (FDI) limit will help domestic insurance companies.

“In view of the increasingly globalised economy and expanding global financial flows, involving liberalised foreign investment (including in India) in various fields like manufacturing, banking etc. for growth and development, the Committee is not in agreement with the argument of not increasing the cap in the insurance sector and goes with the provisions of the Bill to increase the foreign equity investment cap to 49 per cent, which would benefit the Indian insurance sector and facilitate it to meet its capital requirements,” the report said.

It suggested that all forms of foreign investment should be limited to 49 per cent. “The Committee recommends that the composite cap of 49 per cent should be inclusive of all forms of foreign direct investment and foreign portfolio investments. The Committee is also of the view that incremental equity should ideally be Source used for expansion of capital base so as to actually strengthen the insurance sector,” the report said. The panel said the paid-up equity capital of ₹50 crore for health insurance should be increased to Rs 100 crore. Back

Need to look into finer details, say companies about Insurance Bill - Business Standard

The finer details of the Insurance Laws (Amendment) Bill, 2008, will be studied closely before the companies take a decision on increasing stake of foreign partners or infusion of fresh capital. Clarity will be sought on what route the foreign investment would come through, apart from the exact meaning of Indian management control, which has not been explicitly defined.

Sanjay Tripathy, senior executive vice-president, marketing, product, digital and e-commerce, HDFC Life,

said insurers would wait for the finer details of the Bill before taking any decision. He added that smaller

insurance players could see further investment from foreign partners, since they are in need of capital.

The issue of Indian ownership and control as recommended by the Rajya Sabha Select Committee on the Bill has been defined in the Bill with “control”, including the “right to appoint the majority of directors or to control the management or policy decisions, including by virtue of their shareholding or management rights or shareholder agreements or voting agreements”.

However, it is not clear whether voting rights of the foreign partner would be restricted or not and if

foreigners can be appointed in the top management in insurance companies. This would include positions like chief executive, managing director and chief financial officer, apart from the appointed actuary.

Deepak Mittal, managing director and chief executive officer, Edelweiss Tokio Life Insurance Company, said there is a strong interest from large players in the industry to increase stake to 49 per cent, though he added 3 Issue No. 2014/48 www.insuranceinstituteofindia.com

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that IPO activity would begin only after players decide upon whether they require foreign direct investment, foreign institutional investors, or both. If fresh capital is brought in, insurers can get additional funds from their foreign joint venture partners as well as newer entities. Estimates said that the sector would gain an additional Rs 7500-8000 crore if FDI is raised. Fresh equity would mean immediate capital to expand the insurance business by offering additional products and services, along with branch expansion. Some areas of business, especially health and motor insurance are considered to be money guzzlers since a significant portion of revenues go in paying claims. Hence, fresh equity would help those companies who have not been very active in these spaces to increase investment in these fields.

While the insurance regulator had earlier envisaged that large insurers would list on the stock market,

industry players are of the view that they would not do so immediately. “Some large players are interested in

an IPO. However, several factors like FIPB approval or automatic approval, apart from clarity in Indian

management control would be sought before taking a decision,” said a senior insurance executive. Many

players have already agreed that FDI hike would lead to a hike in foreign partner’s stake. Anoop Pabby,

Managing Director and CEO, DHFL Pramerica Life Insurance said partnership agreement between DHFL and

Prudential stipulates explicitly the situation where the FDI cap is lifted. “Prudential has a long-standing desire

to bring up its share to the percentage allowed under the regulation and the agreement provides for this. We

will follow our agreement between partners, subject to regulatory changes,” he said.

He added that the approval on the much awaited insurance Bill which increases the cap on foreign investors from 26 per cent to 49 per cent is likely to bring another wave of growth in the insurance industry. “With the companies focusing on growth and expansion, the penetration of insurance will increase and the security of insurance could be availed by many more in India. It will also give the industry the much needed Source stability and the ability to focus on investing more on technology to revamp the back-end operations for smoother and better customer service,” he said. Back

IRDA Regulation

India has potential to be reinsurance hub for SE Asia: IRDA - The Economic Times

Given its talent pool, India has the potential to become reinsurance hub for South Asian market, IRDA

Chairman TS Vijayan said today. "Today we have only one reinsurance company in India, GIC RE... They are

doing very well... India has the possibility to become a hub of all the re-insurance activities in east and South

East Asia," he said at industry body Ficci's Health Insurance Conference. "Reinsurance hub is possible because

even in a city like Singapore large number of Indian people are doing the analytics job, accounts jobs, legal

jobs," he said. Therefore, India has got enough eco-system to support them educate them, he said, adding that

"we can create certain entity here, which is world leader in reinsurance".

Besides, Vijayan also said the government could think of launching a 'Jan Bima Yojna' similar to Jan Dhan Yojana for banking sector to increase awareness and deepen insurance penetration. It is time for launching a 'Jan Bima Yojna' because if telecom sector can penetrate to remotest place in the country then why can't insurance industry, he said. Industry should think on this and learn from the success of the telecom industry, he added. The Narendra Modi-led government launched the 'Jan Dhan Yojana' in August this year with an aim Source to have at least one account per household in the country. Just like banking, the country is under-covered from an insurance point of view. Back

Life Insurance

Coming soon, leg up for insurance agents - The Hindu Business Line

Being an insurance agent could be back in vogue. A key recommendation included in the proposed Insurance

Amendment Bill empowers the insurance regulator to decide on the commission structure. This is likely to give a boost to life insurance agents, whose numbers have been on the decline over the last four years.

Currently, according to the Insurance Act, the agent’s commission in the first year is capped at around 40 per cent, if the insurer is less than 10-years-old, and 35 per cent for other insurers. Subsequently, in the second

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and the third years, the commission drops to 7.5 per cent of the premium, and to 5 per cent for the rest of the term. IRDA Chairman TS Vijayan, recently said that the regulator is in favour of allowing insurers the freedom to pay out agency commission within the overall expense cap for insurers.

“Insurance is not an easy product to sell. If the regulator is given freedom to decide the agency commission on

a case-to-case basis then insurers can seek approval for a differential commission structure from IRDA while

launching new products. This will help agents sell more,” said V Manickam, Secretary General, Life Insurance

Council. The committee comprising select members of the Rajya Sabha, headed by BJP leader Chandan Mitra,

tabled its report on the Insurance Bill in the upper house on Wednesday.

Boost earnings Tarun Chugh, CEO and Managing Director, PNB MetLife, said that if the move is implemented, it will help in augmenting the current earnings of an insurance agent leading to higher retention. Also, through a performance-based remuneration model, insurance companies can hire high performers and reduce the overall maintenance cost for running the channel, he said. ]] “Freeing up the commission structure will lead to commissions for agents being linked to policy persistency and renewals. This will end the heavily front-loaded commissions and also help reduce agency attrition,” said Sanjay Tripathy, Senior executive Vice-President, HDFC Life Insurance.

The IRDA annual report for 2012-13 estimated the total number of new agents appointed by life insurance companies at 5.65 lakh, while the number of agents terminated stood at 8.01 lakh. There was a 10.01 per cent drop in the number of individual agents to 21.22 lakh as on March 31, 2013 from 23.58 lakh on the same date of previous year.

The Insurance Bill also proposes a hike in the FDI limit. Rajesh Sud, Managing Director and CEO of Max Life

Source Insurance, said the Bill will provide more powers to the regulator which will help in closely regulating and providing flexibility to the industry. Back

Health Insurance

Group medical premium rates for corporates likely to rise 15% - The Hindu Business Line

As loss-burdened general insurers take a hard look at rates, heavy discounts on premiums for companies providing group health insurance to employees may soon be a thing of the past. For the first time, insurers are trying to standardise the information on employees’ medical history for pricing group health policies. Currently, group health insurance is a loss-making portfolio as companies drive hard bargains to bring down premium rates. Also, increasing competition has resulted in severe undercutting, with premium rates declining 5-10 per cent this fiscal, said industry experts.

According to the insurers, the move to standardise the collection of medical data is expected to increase group health insurance premium rates by about 15 per cent, especially in accounts where heavy discounts were provided. General insurers have been increasing premium rates for retail health insurance, though it is a profitable portfolio, and providing heavy discounts on group health insurance rates for corporates.

Corporate discounts Recently, the regulator expressed concern on the heavy discounts offered to corporate clients. At present, general insurers rely on information and data supplied piecemeal by intermediaries or clients. In most cases, the numbers are inconsistent or incomplete and there is inadequate disclosure on such basic aspects as the overall claim payout the previous year or the increase in number of employees covered. Segar Sampathkumar, General Manger of New India Assurance, which holds the largest health insurance portfolio in the market, said there is a need to reform the current system and standardise nomenclature to ensure there is no misrepresentation of information collected. He said this will ensure that brokers are responsible for the data they collect from companies. Sanjay Datta, Chief, Underwriting and Claims, ICICI Lombard General Insurance, said the standardisation will ensure there is clarity on the information collected.

Gurpal Dhingra, Director of Prudent Insurance brokers, said: “The lack of standardised data and information is Source one of the main reasons for poor pricing of group health policies and big losses suffered by most insurers because claims have been disproportionately large compared to premiums paid.” 5 Issue No. 2014/48 www.insuranceinstituteofindia.com

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Group Health Policies Offer Cover for OPD Expenses Too - The Economic Times ()

Now, group health insurance policies have started to cover outpatient department (OPD) expenses incurred by

employees.According to a survey by Vantage Consulting, 11% of the companies they surveyed out of 129 are

offering outpatient treatment under group health insurance policies. Outpatient department products extend

cover to treatments not requiring 24-hour hospitalisation or not included under daycare procedures.

“Most corporates are paying for in-patient hospitalisation; so they have given an option to employees to fund

their premium for outpatient treatment,“ said Sanjay Datta, head of health insurance, ICICI Lombard.

He, however, said that it has not taken off in a big way . This is available on both cashless and reimbursement

basis.These are customised products as part of the arrangement worked out between corporates and

insurers.Insurance companies only started covering outpatient treatment a few years ago through

reimbursements.That meant the customer paid and then put in a claim for the money . Earlier, under health

insurance policies and group health, medical insurance policies only kicked in when there was a minimum 24

hours of hospitalisation.

There are cashless OPD treatments available in the market where insurance companies give a voucher for

consultations. Insurance companies have begun to offer even for day-care procedures in hospitals instead of

the mandatory over-night stay earlier as competition intensifies. About 84% of the companies do such

payments now, says a survey conducted by Vantage Consulting. Health insurance premiums grew 13% in

2013-14 to. 17,500 crore against 18.9% a year before. Over the past seven years, the segment has grown at a Source CAGR of 30%, compared with 17.5% for the non-life industry.

Back

Reinsurance

India has potential to emerge as reinsurance hub: Experts - The Economic Times

A hike in FDI cap in insurance sector to 49 per cent from the current 26 per cent can help India emerge as a

reinsurance hub in Asia, say industry experts. A Parliamentary Committee, examining the Bill on raising the

FDI cap in insurance sector to 49 per cent, will be presenting its report on December 8. India could become an

insurance hub if the government proposal on FDI hike in the key sector comes through and it comes out with

right regulation and infrastructure, they said.

"In economic terms, India is at a turning point in its history, experiencing a renaissance politically,

commercially, culturally. While GDP globally is flat, the IMF recently has revised India's forecasts upwards to

5.6 per cent," Lloyd's Chairman John Nelson has said. He was speaking at the first-ever Indian International

Insurance Summit at London organised recently by Asia Insurance Post and Indian Merchants' Chambers.

"Most importantly, the new government has already demonstrated that it is open to economic reform to

encourage business to become outward looking and to modernise itself," he said. Significant Indian risks

include earthquake, drought, storm and flood, and this year we have recently witnessed devastating flood

events in Kashmir and Jammu, followed by severe losses from Cyclones Hudhud and Nilofer, Nelson said.

"Putting this in numerical terms, our research shows a 1 per cent rise in insurance penetration translates into

a 13 per cent reduction in uninsured losses - a 22 per cent reduction in the taxpayer contribution following a

disaster - and increased investment equivalent of 2 per cent of national GDP.”We see examples of this virtuous

circle played out in many economies," he explained.

At present, non-life insurance penetration in India is under 1 per cent of GDP (0.8 per cent). GIC Re General

Manager Alice Vaidyan said India has potential to emerge as a regional insurance hub.

"The Indian markets have been the top performers in Asia Pacific region." "India could benefit from the

expertise of the London insurance industry," New India Assurance Director and General Manager Sanath

Kumar said at the summit.

Swiss Re Global Partnerships Chairman Martyn Parker said the Indian Government should allow opening of Source local branches of international re-insurers.

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Global news

China: Life insurers expected to curb investments next year - Asia Insurance Review

Chinese life insurers are expected to rein in their investment activities next year, according to international

rating agency, Fitch.

The investment activities will be more subdued because of the insurers' enhanced risk awareness amid

heightened regulatory supervision and more stringent capital rules stipulated in the proposed China Risk

Oriented Solvency System (C-ROSS) scheduled to be introduced next year.

The Chinese insurance companies have increased their riskier investments including wealth management

products for higher yields in recent years, making their credit profiles more vulnerable to an economic

downturn.

Non-life insurers in China will continue to hunt for new capital as business expansion puts further strain on

Source their solvency positions, said Fitch. Their growth in 2015 will be driven by steady sales of motor vehicles,

greater penetration of non-motor insurance lines and insurers' effort in expanding their product reach.

Back

Pakistan: Pilot health insurance scheme to be launched next March - Asia Insurance Review

The Pakistani government will provide health cover to nearly 280,000 poor families in four districts from the

next year. To implement the scheme, the Health Department will register a company to be named Punjab

Health Initiative Management Company, reported the Express Tribune.

Health Department officials say the pilot project of the PKR4 billion (US$40 million) health insurance scheme

will be launched in Layyah, Rajanpur, Hafiazabad and Chakwal in March 2015. Earlier, the Health Department

had shortlisted five insurance companies after inviting expressions of interest.

In addition to government hospitals, the insured families will be able to receive treatment at specified private

hospitals. Each family eligible to be covered by the scheme will be issued an insurance card allowing patients

to receive medical care at hospitals that are on the panel of the insurance company concerned. Each

beneficiary will be entitled to medical insurance cover of up to PKR35,000 (US$347) a year. However, the

scheme will cover in-patient medical treatment only.

The Chairperson of the Punjab Health Insurance Company, Ms Aisha Ghaus Pasha, said that the World Bank’s

data would be used to ascertain the eligibility of beneficiaries. She said similar data had been used to provide financial assistance to the poor under the Benazir Income Support Programme. She said that the government Source

plans to extend the service to other districts later in 2015. Back

China: Personal touch valued but online sales growing - - Asia Insurance Review

Many Chinese insurance buyers like the personal touch of traditional channels, but recent trends suggest an

increase in online sale, according to a new LIMRA and Swiss Re study of insurance consumers in the country.

The report, “The Chinese Insurance Consumer” looks at eight different personal insurance products such as,

life, individual health, critical illness, etc and the distribution channels consumers used to purchase those

products.

Looking at activity within the last decade, 56% of insurance purchases were made through an agent. Banks

were the channel of choice for 13% and insurers’ websites accounted for 8% of buying activity. The past year

saw a big shift with 40% of Chinese consumers saying they purchased insurance from an insurer’s website.

Only 23% said they bought from an agent and 13% from a bank.

Because direct online sales are still limited in China, researchers took a second look at the sudden growth of

buyers who said they purchased directly from an insurer’s website. A buyer’s initial engagement may have

involved online activities such as, visiting a company website, requesting a quote or having an agent contact

them.

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As a result, this experience may have created a perception that the purchase was “online” even when the sale was completed in a more traditional way. While online purchasing has definitely seen a recent increase, two out of the three most popular channels — insurance agents and banks — involve the personal touch. Men are the majority of buyers from agents and insurance websites at 57% in each channel, compared to 43% of women.

There is a big difference in the banking channel where 72% of women buy from banks compared to only 28%

of men. The banking channel serves significantly more middle-to-low income insurance buyers than the two

other channels.

Life insurance (62%) and individual health insurance (17%) were the most cited products purchased. When buyers were asked where they first learned about insurance products, 57% of life insurance buyers said Source television was the source, while family and friends were cited most for health insurance at 62%. LIMRA is a worldwide research, consulting, and professional development organization headquartered in the US. Back

Chinese insurers hunt new capital: Fitch - www.reactionsnet.com

China’s non-life insurers are hunting for new capital as business expansion plans strain their existing resources, Fitch Ratings believes. Their growth in 2015 will be driven by steady sales of motor vehicles, greater penetration of non-motor insurance lines and insurers' effort in expanding their product reach, predicted Fitch.

Chinese life insurers have increased their riskier investments including wealth management products for higher yields, making their credit profiles more vulnerable. However, life insurers will have to rein in investment activities in 2015 because of regulators' heightening supervision and enforcing enhanced risk Source awareness and more stringent capital rules stipulated in the proposed China Risk Oriented Solvency System (C-ROSS). Back

German life insurers’ capital steadily declining: Fitch - www.reactionsnet.com

Persistent low interest rates are cutting German life insurers’ capital buffers, Fitch Ratings has reported. Between 2008 and 2014, the buffers steadily declined, and Fitch expects capital to remain pressurised in 2015, although still adequate. Fitch sector outlook remains negative, given the challenging operating environment.

However, as Fitch considers the German life insurance industry to be well prepared to meet the challenges that it faces and does not foresee many rating changes over the next 12 to 24 months, the rating outlook remains stable.

"The Zinszusatzreserve, an additional reserving requirement introduced in 2011, adds further negative pressure to current statutory solvency ratios, although it helps to protect companies in a prolonged period of low interest rates," said Fitch.

"However, the new Life Insurance Reform Act brings some relief, as it is no longer a requirement for leaving policyholders to benefit through participation in the unrealised capital gains on bond portfolios," it said. Life

insurers are facing plenty of pressure to earn a good investment returns, but Fitch expects rated German life

companies to meet policyholder guarantees. The agency has simulated run-off scenarios with different assumptions.

These stress tests support Fitch's view that rated German life insurers will be able to meet their guarantees for a prolonged period, even if low investment yields persist. Fitch expects new life insurance sales to decline in 2015.

"The reduction in the maximum guaranteed rate from 1.75% to 1.25% from January 1, 2015 is likely to bring

forward life insurance policy sales into 2014’s fourth quarter that otherwise would have taken place in 2015," said Fitch.

Source "The lower guaranteed rate makes traditional life insurance policies less attractive and supports the trend towards products with alternative guarantees or unit-linked products," said the rating agency. 8 Issue No. 2014/48 www.insuranceinstituteofindia.com

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Unpredictability of earthquakes problematic for insurers - www.reactionsnet.com

The unpredictability of earthquakes and the damage that they can cause in cities not generally associated with them, can cause devastating losses for the insurance industry, said Swiss Re in a new report. The report notes that small earthquakes and aftershocks in a city centre that is not traditionally associated with the peril can be devastating, and cause large economic and insured losses, as can be seen in Christchurch in 2010 and 2011.

"During 2010 to 2011, the world suffered a string of serious earthquakes. These events were devastating both in terms of the number of lives lost and the destruction of property and infrastructure," said Matthias Weber, group chief underwriting officer, at Swiss Re in the report’s foreword. "I only need mention what happened in Haiti and Chile or later in North Eastern Japan and in Turkey.

"During this period, several damaging earthquakes also struck Christchurch, New Zealand. Seismic events caused economic losses of over $308bn in these two years and earthquake insured claims for 2011 are likely to surpass $58bn, a world record." The report says that seismic risks in cities that are not often considered to be susceptible to earthquake risks, can cause serious problems for insurers.

It advises the industry through a number of case studies, using cities such as Singapore and Sydney, that cities that are not usually associated with earthquakes, still carry a high risk potential because of the lack of preparation in many of these cities to deal with them.

The expansive and global nature of the insurance industry, also means that while it remains a relatively low probability that an earthquake will strike a specific city, the chances of one happening anywhere in the world are far higher, and insurers with a lot of global risk on their books may be exposed.

"The impact of a Christchurch-like earthquake on a city centre can be immense," says the Swiss Re Report. "There are many such cities around the world which are not usually associated with high earthquake risk. "But when such an event does occur, losses can nonetheless be substantial. The consequences seen in Christchurch are most probably the norm as opposed to the exception. It is true that the probability of a Christchurch-type Source event in any specific city is very low. "Nevertheless, there is a substantial probability that one or other city somewhere in the world will be affected in the coming years and will show similar claims-inflating effects."

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