1. Indian Insurance Markets Casualty Actuaries of Greater New York Spring Meeting 2004 New York, 3 June 2004 Thomas Holzheu Swiss Re, Economic Research & Consulting

2. Indian Insurance Markets CAGNY spring meeting ‘04 Thomas Holzheu Page 2 India: a growing economy India has one of the largest economies in Asia with GDP of USD 612 billion and population over 1 billion. Real GDP has grown on average by 6% during the past decade. Most commentators on India are positive on its growth prospects. Despite the growth, per capita income is only USD 573 and there are wide income disparities. A growing middle class of 200-300 million consumers is looking to spend their increasing incomes on houses, cars and other consumer durables. As 63% of Indian population is in 15-64 age group and another 32.2% in 0-14 age group, there will is continued labor supply to fuel growth.

3. Indian Insurance Markets CAGNY spring meeting ‘04 Thomas Holzheu Page 3 India: a growing economy Projected growth of emerging markets Sources: Oxford Economic Forecasting; Swiss Re Economic Research & Consulting -5 000 0 5 000 10 000 15 000 20 000 25 000 012345678910 Compound annual GDP growth, 2004-2014 (in %), inflation-adjusted GDP per capita, USD at 2003 prices GDP growth, per capita income and size of country by GDP in 2014 Hungary Taiwan Czech Republic South Korea Poland Malaysia China India Mexico Argentina Russia Brazil Indian Insurance Markets CAGNY spring meeting ‘04 Thomas Holzheu

4. Indian Insurance Markets CAGNY spring meeting ‘04 Thomas Holzheu Page 4 Non-life insurance Real premiums Source: Swiss Re Economic Research & Consulting (Asia); Data starting 2002 are forecasts More than double

5. Indian Insurance Markets CAGNY spring meeting ‘04 Thomas Holzheu Page 5 Life insurance Real premiums Source: Swiss Re Economic Research & Consulting (Asia); Data starting 2002 are forecasts +300%

6. Indian Insurance Markets CAGNY spring meeting ‘04 Thomas Holzheu Page 6 Insurance penetration rates increase with income Japan Switzerland US Australia Hong Kong Taiwan S Korea Malaysia Thailand Philippines China Indonesia India Vietnam Singapore Penetration, Non-life 2000 Note: The S-curve shows the statistical relationship between insurance penetration and economic development (represented by GDP per capita). The curve is estimated using panel data between 1979-2000 from more than 90 countries. Source: sigma No.6/2001 Indian Insurance Markets CAGNY spring meeting ‘04 Thomas Holzheu

7. Indian Insurance Markets CAGNY spring meeting ‘04 Thomas Holzheu Page 7 Growth potential of the Indian insurance market There has been significant growth in both life and non-life insurance premiums in India over the last decade. Despite the growth in premiums, the penetration rates is below 0.5%. The per capita insurance premium is below USD 12 for life as well as non-life insurance. Large fractions of the Indian population are still not covered by non-life insurance. Indian market is untapped, with considerable potential for growth. Regulation and low per capita income explained the low penetration. With Indian economy growing, the biggest constrain on future growth remains the slow deregulation.

8. Indian Insurance Markets CAGNY spring meeting ‘04 Thomas Holzheu Page 8 Regulation and competition: Achievements Before 1999, there was a monopoly of state run insurance companies. In wake of reforms initiated by the Indian government, the passage of Insurance Regulatory Development Act (1999) opened insurance for private companies. Entry of private insurers have kept strong competitive pressures on incumbents, which are the subsidiaries of previously state run insurance company. Global insurers have formed joint ventures with domestic partners. Product innovation in several areas has been noticed. Solvency margin requirements have been introduced.

9. Indian Insurance Markets CAGNY spring meeting ‘04 Thomas Holzheu Page 9 Regulation and competition: To-do-list Despite move towards liberalization, significant regulations still exits. Foreign companies are denied majority control. Their participation is capped at 26% for joint ventures. All general insurers are required to cede 20% of their business to GIC (state run reinsurer). Foreign reinsueres can be used only after all national capacity has been explored. Reinsurance is geared towards maximizing domestic retention. Cession to any one foreign insurer cannot exceed 10% of total oversees cessions. More than 60% of the non-life premiums fall under a tariff regime set by the Tariff Advisory Committee (TAC).

10. Indian Insurance Markets CAGNY spring meeting ‘04 Thomas Holzheu Page 10 Major challenges Major challenges facing India’s insurance market: Unleash potential of domestic insurance market. High level of regulation. Ensure balance between state-owned and private companies. Management of huge nat cat exposures. Establish a sizeable domestic reinsurance market.

11. Indian Insurance Markets CAGNY spring meeting ‘04 Thomas Holzheu Page 11 Key issues to address To meet these challenges, India’s insurance market needs to address these key issues: FDI cap of 26% on foreign capital (49% awaiting cabinet approval). Detariffing of non-life sector. Unlimited motor third-party liability threatening the viability of business.

12. Indian Insurance Markets CAGNY spring meeting ‘04 Thomas Holzheu Page 12 Indian politics: Recent update Recent elections led to the emergence of Manmohan Singh, the architect of Indian liberalization, as the Prime Minister. Unable to obtain a clear majority, the Congress party had to rely on left fronts support for forming the government. The left front has been opposing deregulation and liberalization and its needs to be seen if they will be impediments for dismantling of regulation in general and insurance in particular. On the whole it appears that with small glitches or delays, India is on her way to more liberalization and market oriented economy.