Falling Interest Rates 12th Seminar on Current Issues in Life Assurance (CILA) Falling Interest Rates Conclusions 20 February 2017 Mumbai Indian Actuarial Profession Serving the Cause of Public Interest

Where will interest rates be in two-three years’ time? Question 1 Where will interest rates be in two-three years’ time? Around the same as of now Lower but not mature market levels Mature market levels Higher www.actuariesindia.org

One of the biggest challenge Question 2 Are falling interest rates currently the biggest challenge being faced by the life insurance industry in India? Yes No One of the biggest challenge www.actuariesindia.org

No – India has its own unique challenges Question 3 Are there learnings from other global markets on how to tackle the issue? Yes - Definitely No – India has its own unique challenges Some – Need customized solutions www.actuariesindia.org

Profit margins / Required expense efficiencies Product mix Question 4 Which of the following areas will be most impacted by falling interest rates? Investment strategy Profit margins / Required expense efficiencies Product mix Risk management Insurance company valuations www.actuariesindia.org

Non-participating savings Protection Annuity Question 5 Which product class will become increasingly relevant in case of falling interest rates? Unit-linked Participating Non-participating savings Protection Annuity www.actuariesindia.org

Non-participating savings Protection Annuity Question 6 Which product class will become increasingly irrelevant in case of falling interest rates? Unit-linked Participating Non-participating savings Protection Annuity www.actuariesindia.org

Question 7 Which asset class is expected to see the highest incremental future investments due to falling interest rates? Corporate bonds Infrastructure bonds Equities Others www.actuariesindia.org

Operationalisation of ERM framework Use of derivatives Others Question 8 From a risk management perspective, which is the key actionable due to falling interest rates? Enhanced ALM Operationalisation of ERM framework Use of derivatives Others www.actuariesindia.org

Question 9 Do you see Indian life insurers struggling for solvency if interest rates reached mature market levels in the short to medium term? Yes No Maybe www.actuariesindia.org

Effective risk management Question 10 What should be the regulator’s primary focus in a falling interest rate scenario? Solvency Customer protection Investments Effective risk management www.actuariesindia.org