1. INDIAN INSURANCE INDUSTRY 2001-02 D. SENGUPTA CHAIRMAN GENERAL INSURANCE CORPORATION OF INDIA

2. The Indian general insurance business has been in the Government sector since 1973 and transacted by GIC and its four wholly owned subsidiary companies. In consonance with Government’s commitment to WTO, in 1999 the insurance industry is opened up to private sector insurance companies with foreign partners Opening up of Indian Insurance Industry

3. India is the world’s largest democracy with population of over 1 billion in 2000. It is a member of the Commonwealth. It is a Union of States comprising 28 States and 4 Union Territories. About 28% population is urban Despite changes in ruling parties, the country remained democratic with an elected government since independence in 1947 The Per Capita Gross Domestic Product is approx. US$ 350 The per capita general insurance premium is Rs. 98 (US$ 2.09) Economic Growth Rate is approximately 6.1% Inflation rate is 5.4% (Aug-2001) Exchange rate : US$ is Rupees 47.10 (Aug-2001) India - facts

4. Prior to 1999 Government owned GIC was acting as holding company and reinsurer Four GIC-owned companies carrying out all the non-life insurance business in the country. The four companies have a net work of 4127 Offices spread all over the country. They also have branch offices and/or joint venture operations in 30 foreign countries. Gross Direct Premium as at 31-Mar-2001 is Rs. 97998 Million which is approximately US $ 2085 Million Insurance Industry

5. Indian Non-Life business - Premiums and Claims ratios Figures in Rs. Million Year : 1999-00 Insurance Industry

6. A large portion of general insurance business is Tariff controlled. Fire, Motor and Engineering classes are fully tariff controlled. Marine Hull major fleets are Tariff rated. Some part of Marine Cargo business is also tariffed. 20% of the premium written by the direct companies is ceded to the GIC as Obligatory Cessions. Around 89% of the premium was retained within the country and 11% is ceded outside the country. Insurance Industry

7. Reinsurance premium ceded out is mainly in respect of Excess of Loss protections and proportional premium in respect of Fire/IAR Peak Risks, large engineering construction projects, Marine Hull- super tankers, Oil cargo shipments and Aviation-airline fleet risks. Largest valued fire risk is an oil refinery with a PML of Rs. 23000 Million (Approx. US$ 490 Million). Insurance Industry

8. Life insurance business was transacted by the state owned Life Insurance Corporation of India with branch and agency net-work all over the country. Total life premium in the country for the financial year 2000-01 is Rs. 348.77 Billion which is approximately US $ 7.42 million. It is estimated that for 2001-02 it would be Rs. 480 Billion ($ 10.20 Billion).. Insurance Industry

9. In 1999 the Insurance ReguIatory and Development Authority (IRDA) Act was enacted and an authority (the Regulator) to control, regulate and enable development of insurance industry namely the IRDA was set up. Insurance companies in the private sector are allowed both in Life and Non-Life categories but composite companies are not permitted. Insurance Industry

10. The requirements for private sector Insurance Companies are Minimum share capital of Rs. 1000 Million (US$ 21.25 Million approx) Foreign joint-venture partners if any, are allowed to hold a maximum of 26% of the share capital. GIC appointed as the “Indian Reinsurer” with exclusively reinsurance function and corollary functions. Insurance Industry

11. The Industry today Today in addition to the four existing public- sector general insurance companies, six private insurance companies have been licensed to function. Most of them have started functioning from the beginning of this financial year. Following Tables show details Insurance Industry

12. Non Life Insurance companies Insurance Industry

13. Life Insurance companies

14. Insurance Industry Credit Insurance companies

15. Insurance Industry Other Insurance related institutions`

16. Following the IRDA Act, GIC is nominated as the “Indian Reinsurer”. Salient features Receiving Obligatory Cessions from all non-life insurance companies Organise and manage Market Pools and arrange for their excess of loss protection Accept treaty and facultative business from Indian companies. Collect, Analyse and Present Indian and International Insurance Data and Trend Analysis. Develop automatic capacity for products and lines of business, including new ones to be introduced GIC of India

17. GIC as the International Reinsurer GIC has been accepting foreign inward reinsurance for 25 years now and has built up strong long-standing relationship with major international reinsurers such as Axa, SCOR, Partner Re, La Reunion, Lloyd’s Syndicates, Munich Re, Swiss Re and Zurich Re. Budgeted income from foreign inward business for 2001-02 is US $ 200 Million. Capacity offered by GIC USD 50 mln on facultative risks and USD 10 mln for treaties GIC rated ‘A’ by AM Best GIC of India

18. GlC - A TRUSTED SECURITY S & P Standard < 330% TEST 1 : NET PREMIUM/ ADJUSTED SHAREHOLD ERS FUNDS …measures a company’s overall underwriting exposure in relation to its capital base. Low exposure to shareholder funds- Under-utilised Capacity

19. Global Market : Where we stand? TEST 2 : CHANGE IN NET PREMIUM S & P Standard : Between (- 10% ) and (+ 30%) …...seeks to monitor the rate of change of exposure indicating need for capital backing Low exposure, no extra capital requirement

20. Global Market : Where we stand? TEST 3 : REINSURANCE CEDED/GROSS PREMIUM S & P Standard : Greater than 50% ……measures the extent of dependence on reinsurance/ retrocessions. Low dependence on reinsurers indicating sound financials and retention capacity

21. Global Market : Where we stand? S & P Standard : < 105% TEST 4 : TECHNICAL RESERVES /ADJUSTED LIQUID ASSETS …..assess the adequacy of the company’s liquidity in relation to its technical insurance liabilities and ability to respond to heavy cash calls Highly liquid and enough financial strength to support the fresh risks

22. Global Market : Where we stand? …..where a company has a lower level of return on its underwriting operation so that it retains less than 75% of its investment income after paying underwriting losses, it will tend to have difficulty maintaining the real value of its capital base S & P Standard : > -25% TEST 5 : TWO YEAR UNDERWRITING PROFIT/ INVESTMENT INCOME RATIO Matter of concern, however relates to only recent years of domestic catastrophic losses

23. Global Market : Where we stand? ….this is the familiar “return on equity” ratio. S & P Standard : Greater than 5% TEST 6 : PRETAX PROFITS/AVG. ADJUSTED SHAREHOLDERS FUNDS Comparable with world class reinsurers

24. Global Market : Where we stand? ….the purpose of this test is to identify companies which may be in total under- reserved and/or undercapitalised. S & P Standard : > 150% TEST 7: TECH. RESERVES+ADJ. SHAREHOLDERS FUNDS/NET PREMIUM Adequate reserves and capital, can offer more capacity

25. Global Market : Where we stand? ….this test measures the scale of the company’s reserves in relation to the size of its trading base. S & P Standard : < 350% TEST 8 : TECHNICAL RESERVES/ADJUSTED SHAREHOLDERS FUNDS Low exposure compared to the asset base indicating unutilised capacity

26. GIC intends to expand the foreign inward operations and emerge as an international professional reinsurer. The targeted thrust areas are the Far-East Asia, South Asia, the Middle East and Africa. GIC has opened a representative office in London in 2001 and intends to open further offices in Moscow, Jeddah and Dubai. GIC has joint venture partners in Singapore (India International) and Malaysia (United Oriental insurance Co) and Kenya (KenIndia Insurance Co., Nairobi), GIC of India

27. THANK YOU

28. GIC of India