0 Copyright © 2008 Deloitte Development LLC. All rights reserved. New Paradigm for International Insurance Comparison With an Application to Comparison of Seven Insurance Markets Presented By: Stephen Packard Director, Financial Services/Strategy and Operations Deloitte Consulting, LLP Presented By: Stephen Packard Director, Financial Services/Strategy and Operations Deloitte Consulting, LLP

1 Copyright © 2008 Deloitte Development LLC. All rights reserved. There are many factors contributing to the strategic importance of accurately assessing market growth potential. Those factors include: Making the right investment choices requires a comprehensive and consistent framework to understand the current and future growth opportunities in various geographic/geopolitical markets. Competitive environment and market conditions will increase the damage caused by wrong bets Need to capitalize on international institutions involved in market building Making the right investment choices requires a comprehensive and consistent framework to understand the current and future growth opportunities in various geographic/geopolitical markets. Competitive environment and market conditions will increase the damage caused by wrong bets Need to capitalize on international institutions involved in market building The strategic importance of assessing growth potential of insurance markets

2 Copyright © 2008 Deloitte Development LLC. All rights reserved. The Two Insurance Growth Models The basis of the author’s thesis is a comparison between two “world insurance growth models”: The Ordinary Growth Model and the Adjusted Growth Model. Each has its own application and comparisons between them provide new insight. Ordinary Growth Model Adjusted Growth Model Observations from the Ordinary Growth Model Insurance penetration rises as GDP per capita rises, but different levels of GDP per capita accompany different rates of increase for insurance penetration Low GDP per capita correlates with a slow rate of increase for Insurance Penetration Increasing GDP per capita leads to a high rate of increase for Insurance Penetration However, at the highest levels of GDP per Capita the rate of Insurance Penetration slows and levels off Does not separate the economic factors and institutional factors influencing insurance growth Observations from the Adjusted Growth Model Separates country-specific institutional factors and economic factors influencing insurance growth More suited to structural analysis of the insurance industry. For instance, to compare the growth structure of each country’s insurance industry Comparing the Ordinary Growth Model and Adjusted Growth Model allows the observer to separate the different impacts of economic factors and institutional factors on the development of the insurance industry for an individual country

3 Copyright © 2008 Deloitte Development LLC. All rights reserved. A New Method for Measurement Each of the current methods for measurement of the insurance industry within a country are problematic in that they do not provide for the effects of the relative stage of economic growth. A new method of measurement is introduced to accommodate these differences MethodDefinitionBenefitsChallenges Premium Income Method Measures the total premium income Depicts the overall scale of the insurance market in each country Fails to take the population factor into consideration Insurance Density Method The per capita premium (Premium divided by population) Better reflects the true level of insurance growth compared to the premium income method Only considers the development of the insurance industry in isolation. Does not take into account the relationship between the insurance industry and the economy Insurance Penetration Method Total premium divided by GDP. An alternate method is insurance density/GDP per capita Characterizes the relationship between the insurance industry and the broader economy Does not consider the different stages of economic development and thus does not account for different insurance penetration levels at each stage of development New Method: BRIP Benchmark Ratio of Insurance Penetration The relationship between the a country’s insurance penetration and the world’s average penetration (at an equivalent economic level) A measure of the relative development of the country’s insurance industry to the stage of economic development

4 Copyright © 2008 Deloitte Development LLC. All rights reserved. The Implications of BRIP Method By measuring the relative development of a given country’s insurance industry in relation to its own stage of economic development, the authors are able to gain insight into the specific factors driving industry growth. Market GDP per capita （ US$) Premium Income （ million US$ ） Insurance density (US$) Insurance penetratio n （％） BRIP U.S. 43,5621,170,1013, Japan 34,661460,2613, U.K. 39,207418,3666, China 2,05570, India 78443, Brazil 5,64030, Russia 6,87721, World Average 7,3723,723,441 † Table 3: Insurance Industry Raw Data of Seven Selected Countries in 2006 If BRIP is equal to 1, the country’s actual penetration is equal to the world average penetration at that country’s economic level Market GDP per capita Premium Insurance density Insurance penetration BRIP U.S Japan U.K China India Brazil Russia Table 4: Rankings of Insurance Industry of Seven Countries in 2006 According to BRIP, the rankings of insurance industries of developed countries descend relative to rankings under traditional indicators, but rankings of emerging countries rise

5 Copyright © 2008 Deloitte Development LLC. All rights reserved. The Implications of BRIP Method By applying the BRIP Method and examining the ranking over time new conclusions are drawn compared to traditional indicators U.S. 9 （ 17% ） 8 （ 15% ） 15 （ 20% ） 20 （ 22% ） 19 （ 20% ） 26 （ 30% ） Japan 8 （ 15% ） 5 （ 9% ） 7 （ 9% ） 8 （ 9% ） 12 （ 13% ） 14 （ 16% ） U.K. 11 （ 21% ） 7 （ 13% ） 6 （ 8% ） 7 （ 8% ） 4 （ 5% ） China 53 （ 100% ） 49 （ 89% ） 49 （ 64% ） 54 （ 59% ） 27 （ 29% ） 27 （ 31% ） India 36 （ 68% ） 33 （ 60% ） 30 （ 39% ） 39 （ 42% ） 15 （ 16% ） 5 （ 6% ） Brazil 48 （ 91% ） 50 （ 91% ） 62 （ 82% ） 48 （ 52% ） 53 （ 57% ） 36 （ 41% ） Russia-- 70 （ 92% ） 59 （ 64% ） 35 （ 38% ） 52 （ 60% ） Number of Countries Table 5: Ranking of BRIP of Seven Countries (1982 ~ 2006) This suggests emerging countries’ growth potential has been larger than indicated by traditional measures During the past two decades and more, the rankings of BRIP for developed countries have both risen and declined. However, BRIP rankings for emerging countries have risen.

6 Copyright © 2008 Deloitte Development LLC. All rights reserved. Conclusions In conclusion, the introduction of a new measurement model along with the insights presented by the authors based on the Adjusted Growth Model and the trichotomy focuses new attention on the insurance industry in emerging countries. Industry growth in emerging countries is driven largely by institutional factors while developed countries growth is driven mostly by regular economic factors Introduction of the BRIP measurement indicates insurance growth levels in emerging countries is understated by traditional measures while developed countries growth is overstated Author’s Conclusions The need for top line growth will during soft market conditions will drive insurers towards other markets Understanding the drivers of insurance growth in emerging markets is critical to making good business decisions Institutional growth in emerging markets should be monitored as it represents the greatest driver of industry growth when GDP is low Looking beyond the traditional measures will give savvy leaders an edge and allow them to view countries with low penetration rates in a new, more sophisticated way Impacts for Business Leaders