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Australia’s life insurance sector has become one of the most successful and competitive markets for both insurers and consumers in the aftermath of the 2008-9 global economic crisis. Despite this considerable progress however, industry observers insist that more work should be done to ensure the market can effectively capitalize on its considerable growth potential going forward. A panel of risk experts convened last week to discuss these issues and determined that Australia’s life insurance sector needs both higher quality data records and a more efficient and simple claims process to encourage policy take up in the Oceania region further.

Speaking at the Financial Services Council Life Insurance Conference 2012 in Sydney last week, Australian Prudential Regulation Authority (APRA) member Ian Laughlin insisted that the country’s group life insurance market (usually negotiated through employers) must do more to improve its pricing practices and overall claims experience to continue to build upon the industry’s strong growth momentum going forward. The APRA, Australia’s chief financial services regulatory body, will itself play a more active role in setting industry policy to hopefully achieve some of these objectives. According to Laughlin, the APRA plan on publishing the prudential standards for superannuation consultation, or SPS 250, in Australia quite soon. Laughlin explained at the conference to Investor Daily that these new industry guidelines “will have a specific requirement for trustees to maintain good quality data so that the incumbent insurer and the insurers involved in a tender have a robust foundation,” he said.

The APRA’s decision to gradually implement these updated financial oversight mechanisms is expected to receive a relatively positive response from active Australia life insurance market players. One of which, MLC executive general manager Duncan West, was on hand at the same panel event last week to herald the APRA’s increased involvement as a positive development for the domestic life insurance sector. According to Mr West, the Australian life insurance industry has been in need of a more comprehensive and detail-oriented real time management network for some time. The introduction of these guidelines could enable pricing, underwriting and claims information to be shared amongst industry players more readily, and this would in turn create a more sustainable market that could respond to events efficiently and would also drive differentiation in the risk market. “The industry is in need of much more granular detail and real time management information on pricing, underwriting and claims to enable all players in the marketplace to respond really quickly,” West said.

The APRA also believe that making life insurance policy wording and claims terms more simple and easier to understand will be critical to the Australian life sector’s continued development, as the ability to attract previously untapped consumer groups remains high on most company priorities. Laughlin further added that the complexity of life insurance products and the way these policies are currently pushed and managed by the industry have not helped the average Australian consumer better understand and appreciate the importance of taking out appropriate insurance coverage. “If we could find a way to stop adding bells and whistles it would make a big difference,” Laughlin added.

In addition to these improved communications efforts, claims were also an area targeted for improvement in the Australian life insurance market. PricewaterhouseCoopers Australia insurance leader Scott Fergusson told conference attendees that the industry’s service standards could be improved further by looking at how other sectors had achieved better claims processing outcomes in recent years. “There are some [insights] to be gained around how claims are managed from other sectors in the broader insurance space,” Fergusson said, adding that “disciplines can be brought into helping the better management disability claims.”

Finally the Financial Services Council (FSC) used the panel event to reiterate their commitment to tackle and hopefully abolish the practice of ‘churning’ in Australia’s life insurance market over the next few years. While only a small proportion of local financial advisors and insurance brokers are suspected of churning, or excessive client account trading for commissions, the FSC believe that it is indeed a serious issue that is significant enough to warrant strong industry action going forward. Over the past year, the FSC has been developing a replacement business remuneration framework which will restrict Australian life insurance companies from paying upfront commissions to an insurance broker more than once within a fiver year period, per policy. FSC’s rules on churn would also see the removal of ‘takeover terms’ for a policy or a group of policies that are transferred by a financial adviser between insurers. Financial advisers could thus only be paid level commission if ‘replacement business’ is arranged. The council has earmarked 1 July, 2013 as the deadline for implementing binding market standards to combat churning and other unethical insurance business practices in Australia.

While the FSC panel has indeed pointed out some areas in need of improvement, it should be noted that Australia’s life insurance market remains in good health, as recent research shows. According to the results of a study released by Clear View Wealth, an Australian financial services firm, Australian life insurers are offering highly competitive premium rates compared to their international peers. The study found that Australia’s life insurance firms consistently provided the cheapest group life cover premiums, the second cheapest adviser and direct life cover premiums and the fourth cheapest consumer credit life cover premiums worldwide. Furthermore in a December report on the state of the life insurance market as of September 2011, DEXX&R, an Australian research company, found that both new premium and in-force premiums had grown substanitally. New annual premiums amounted to A$2.2 billion (US$2.36 billion), an increase of 11 percent. In-force premiums grew at a slightly lower rate of 10.9 percent to an annual total of A$9.6 billion (US$9.98 billion). These findings show that both providers and consumers are currently benefiting from the Australian life insurance industry’s continued growth and development, and further progressive regulatory policing should only work to improve upon this trend.

Organizations Mentioned

APRA

The Australian Prudential Regulation Authority (APRA) supervises Australia’s banks, credit unions, general insurance and reinsurance companies, life insurance, and other members of the domestitc superannuation industry. The APRA was founded 1 July 1998.

Malaysia’s life insurance regulator expects another of year of sustained progress for the country’s insurers, with new business premiums now forecast to grow by a moderate 7 to 10 percent in 2012 despite ongoing global economic uncertainty.

The Life Insurance Association of Malaysia (LIAM) believes that the further development of the South Asian country’s life insurance sector will hinge on several market opportunities in 2012, chief among them being the continued development of the Malay economy at large. Economists have pegged Malaysia’s gross domestic product (GDP) growth at between 5 and 6 percent this year, with the country’s emerging services and manufacturing sectors leading the development charge, according to an article in The Star. The LIAM’s positive life insurance industry growth forecast thus falls into line most analyst expectations, as insurance market prospects can usually be tied at 2 to 3 percent above a given country’s GDP growth rate.

This organic economic growth will be further supported by several important government initiatives. The Malaysian government has rolled out investment projects with the explicit goals of stimulating domestic economic activity, doubling GDP per-capita and turning Malaysia into a developed and high income country by 2020. These new initiatives, which include the Economic Transformation Program, the 10^th Malaysian Plan, and higher tax incentives for retirement products and private pension plans, will provide a platform for life and general insurance products to expand throughout Malaysia.

The LIAM added that in addition to these developments, the country’s current low insurance penetration rate, helped guide their industry forecast of a 7 to 10 percent growth rate this year. Around 43 percent of the Malaysian population currently holds some form of life insurance protection while the Shariah-compliant takaful equivalent is held by about another 10 percent, according to the LIAM.This level of life insurance penetration is low by developed economy standards and thus attempts to close this coverage gap should spur domestic market demand. As part of the LIAM’s five year strategy plan, the association will continue to drive its consumer education program and raise awareness of the value of insurance, especially the need for savings and protection, in order to boost the level of insurance penetration in the country. Added to this is the current low interest rate environment, which will likely act as further impetus to consumers who are seeking high-yield financial products like insurance in Malaysia.

The LIAM outlined that while Malaysia’s life insurance industry managed to maintain a steady growth rate last year, its performance could not match the highs of 2010. According to their recently released stats sheet, the Malaysian life insurance market’s growth rate declined by 6 percent in 2011, with new business total premiums falling down to MYR7.92 billion (US$2.6 billion) from MYR8.42 billion (US$2.76 billion) in 2010. This decline was predominantly attributed to one insurer’s decision to scale back their single premium individual traditional life insurance products, which drove the sector’s new premium levels down by 18.5 percent. Outside of this development, annual premium individual business in Malaysia actually achieved a healthy 8.9 percent growth rate, with investment-linked businesses continuing to outperform traditional lines. In fact, while the size of traditional life insurance business is still larger than investment-linked businesses in Malaysia, with total annualized premium of MYR2.2 billion (US$720 million) versus MYR1.8 billion (US$590 million), the gap is narrowing year by year. The LIA also noted that group life insurance business also enjoyed a steady growth rate of 3.3 percent in 2011 and this figure is only set to improve as Malaysia’s economy grows and more domestic companies begin to entice employees with benefit packages.

In line with this steady growth in new life insurance sales, the LIA report acknowledged that the total premium for in-force insurance policies in Malaysia also managed to grow by 9.4 percent last year, as insurers managed to raise rates on consumers through more sophisticated and higher-margin individual and group insurance policies. On individual life insurance, the LIA noted that growth came predominantly from annualized premium policies, while single investment-linked business premiums saw a pronounced 30 percent decline in in-force premiums during 2011. Annualized premium investment-linked business meanwhile experienced a stronger growth rate of 12.5 percent against traditional annual premium business, which grew by 8.5 percent last year. In absolute terms, the LIA found that traditional annual premium business added more than MYR1 billion (US$330 million) in premium value throughout 2011, while the corresponding addition in investment-linked annual premium business amounted to MYR771 million (US$253 million).

Going forward the LIAM expect sales of both regular premium and investment-linked life insurance products to pick up and drive the further development of Malaysia’s life insurance market. Given the recent moves made by the national government to encourage greater coverage, the association also expects retirement-related products, health insurance and other protection-related policies to do quite well in 2012. For life insurers working to position themselves in a fast moving but still underdeveloped market, developing more robust distribution channels that expand into Malaysia’s largely untapped rural markets will furthermore become crucial to boosting overall sales and raising the country’s low insurance penetration rate.

The LIAM warned however that global economic uncertainty, particularly the ongoing Eurozone and US debt issues, could still restrain the growth potential of the Malaysian life insurance industry but would not prove as fatal as once thought. The South Asian country’s life market managed to sustain small but positive growth figures even in the midst of the 2008 global economic slowdown, and now with added financial system buffers and improve risk management practices in place, the regulator is confident that the industry could quickly mitigate any effects from another potential global credit crunch.

Organizations Mentioned

LIAM

The Life Insurance Association of Malaysia (LIAM) is a trade association that represents the interests of those participating in Malaysia’s life insurance market. Founded in 1996, the LIAM features 17 member companies, of which 15 are life insurance companies and 2 are life reinsurance companies.

Singapore’s life insurance industry has been able to weather volatile global capital markets to great affect this past year, with new business premiums crossing the S$2 billion threshold for the first time in 2011 according to a new report.

In their year-end dataset released this week, the Life Insurance Association of Singapore (LIA) revealed that the country’s life insurance industry grew by 22 percent in 2011. The LIA is a non-profit trade body licensed by the Monetary Authority of Singapore (MAS) that works to represent the interests of 16 major life insurers and 3 life reinsurers in the Southeast Asian country. This year represents the association’s 50th anniversary.

According to the LIA, sustained growth over four consecutive quarters enabled the Singaporean life insurance sector to realize S$2,007.4 million (US$1.6 billion) in ‘weighted’ new business premiums during the 2011 reporting period, up from the S$1,651.3 million (US$1.3 billion) recorded in 2010. The LIA calculates the weighted new business premium figure by adding 10 percent of the Single Premium Index (SPI) to 100 percent of the Annual Premium Index (API), with an additional modifier for premium payment terms of less than 10 years.

Despite this considerable year-on-year progress however, the LIA noted that new business growth did in fact decline slightly for Singapore life insurers during the fourth quarter. This period was marked by a strong divergence in demand between annual-premium and single-premium life insurance products in Singapore. From October to December 2011, sales of annual-premium products, which are insurance plans with long-term savings components, reached S$386.4 million (US$30.9 million), a 19 percent annual increase. Single premium businesses, or short tenure plans, meanwhile experienced a sharp 23 percent annual decline to S$156.5 million (US$124.7 million), according to the LIA, quite a turnaround from the 16 percent growth rate experienced last quarter. Combined, sales of both types of products which reached S$542.9 million (US$432.7 million), yielded only a 3 percent growth rate for Singaporean life insurers over the same fourth quarter period last year.

Singapore’s life insurance sector is divided into companies with normal licenses and those classified as ‘defined market segment’ (DMS) insurance companies. DMS insurers are specifically registered with the MAS to conduct only non CPF-related business (the country’s mandatory savings and retirement fund) and are required to stay within certain minimum policy sizes. The following multinational insurers are currently DMS classified companies in Singapore: Friends Provident International, Generali, Royal Skandia, Transamerica and Zurich International. According to the LIA statement, these DMS insurers have contributed 5 percent of new sales for the year, while insurers holding normal licenses represented the other 95 percent.

Up to the end of December 2011, Singapore’s life insurance industry paid out a total of S$3.69 billion (US$2.94 billion) to associated policyholders and beneficiaries. Of these payouts, the LIA detailed that only S$467 million (US$372 million) came as a result of death, critical illness or other disability claims, while the remaining S$4.74 billion (US$3.78 billion) were for policies that matured. The association also noted that, as of September 2011, Singapore life insurers were managing assets worth approximately S$118.3 billion (US$94.3 billion), up 1 percent annually. Assets of non-linked business accounted for S$96.4 billion and investment-linked policies made up the remaining $21.9 billion (US$17.45 billion) in assets. In terms of overall manpower, LIA member companies in the Singaporean life insurance sector now employ 5,147 office staff and 13,221 sales representatives in total.

In explaining the updated insurance market statistics, Mr. Tan Hak Leh, President of the Life Insurance Association (LIA), acknowledged that while the performance of Singapore’s insurance sector would continue to be impacted by global economic volatility, the rising protection and investment needs of Singapore’s middle-class population should be able to provide local insurers with enough momentum to achieve sustainable premium growth in their home market going forward. The fact that Singapore’s life insurance industry has delivered four consecutive quarters of growth is evidence of this. “The overall results point to the fact that the industry remains in a strong position. The economy as well as consumer sentiment went through uncertain times during 2011, and it’s good to note that the industry has remained resilient. We owe this to a combination of the resourcefulness of our industry in delivering pertinent products and quality servicing and consumer confidence in life insurance solutions for their financial plans.” Mr Tan Hak Leh commented.

In addition to life insurance data, the LIA year-end report managed to highlight several other trends occurring in the Singaporean insurance market during 2011. According to the report, new health insurance sales grew by 6 percent last year, bringing in S$165 million (US$131.5 million) in premiums. Of these new health insurance sales, the majority, 88 percent, went into Integrated Shield Plans and associated riders, Singapore’s equivalent of Medicare insurance. This growth in new health insurance sales has been attributed to rising medical costs in Singapore and increased awareness amongst the populace of greater medical protection policies. The LIA was pleased to note that, as of December 31 2011, over 2.48 million people are now covered by health insurance in Singapore, well over half the island’s population, with paid up premiums totalling S$877 million (US$698.9 million). “It is assuring to note the steadily increasing take-up rate for health insurance over the past three years. Consumers are taking steps in the right direction to get health insurance coverage to meet rising medical costs,” Tan added.

The report also detailed several distribution channel trends occurring in the Singapore insurance market. The LIA noted that the country’s 13,000-strong tied agency force remains the main avenue of distribution in Singapore. Agents have contributed to nearly half of all the new business written by life insurers, bringing in approximately 49 percent of all weighted new business sales in 2011, according to the LIA. This performance was followed by an uptick in the number of insurance products and services sold through banks, commonly referred to as bancassurance. Indeed, according to the LIA, bancassurance now accounts for around 34 percent of insurance sales in Singapore, up 7 percent on last year’s report. Financial advisers in the country meanwhile have contributed 14 percent towards new insurance sales this year, while other channels, including direct sales channels, have made up the remaining 3 percent of business.

The LIA furthermore observed that Singapore consumer preferences over different types of life insurance products have remained fairly consistent over the past few years. Participating (par) whole-life insurance products are the most popular policies, making up 52 percent of new sales, with non-participating annuities and investment-linked products splitting the remaining business between them, at 25 and 23 percent of recent sales respectively. Singaporean consumers have consistently demonstrated a clear preference for the dividend options that mutual life insurance companies can provide.

In the concluding remarks, LIA President Tan Hak Leh recapped that during these volatile global economic times, the demand for robust long term planning and savings solutions increases, and it will incumbent on Singapore’s insurers to adequately meet and capitalize on these needs. “Amidst continuing global economic uncertainties, it is critical for life insurance companies to remain vigilant and proactively manage their business to safeguard the long-term financial soundness of the industry,” said Mr Tan.

Organizations Mentioned

LIA

Founded in 1962, the LIA works to further develop Singapore’s life insurance industry. Since its establishment, the organization has launched public education initiatives, improved industry guidelines, conducted valuable market research, and held numerous conferences and seminars for the professional development of the industry.

India’s life insurance industry, once one the strongest performing sectors in the country, has seen its growth prospects curtailed in the past year due to regulatory restrictions, competition, and limited investor activity, according to a new report.

New data released this week by the Insurance Regulatory and Development Authority (IRDA) reveals that new business premium income for India’s 24 active life insurance companies fell by a considerable 17 percent to INR719.53 billion (US$14.49 billion) in the first nine months of the 2011-2012 fiscal year. Excluding sales of group policies, the drop would be even more severe at 33 percent to INR391.3 billion (US$7.8 billion), down from INR866.9 billion (US$17.46 billion) a year prior. The data indicated that there had been a fall in the overall number of life policies sold over the past year. While the life insurance industry sold 30.68 million policies in FY2010-11, it has only been able to sell 27.24 million so far this fiscal year, an 11.21 percent decline. The rate of increase in renewal premium income also dropped from 10 percent to 4 percent this year.

India’s private life insurance companies have largely born the brunt of this decline in premium volume. According to the IRDA statistics, the number of new life policies issued by private sector insurers has fallen by almost 30 percent over the past three quarters, from 7.9 million issued in 2010 to 5.6 million this year. This has occurred while the number of sales by India’s largest public sector life insurer, Life Insurance Corporation (LIC) of India, dropped by a more modest 4.6 percent, to 21.67 million new policies this fiscal year. During the April-December reporting period, the IRDA noted that LIC’s premium collection had fallen by 15.86 percent, while the private sector cumulatively saw their premiums drop 20.34 percent. While LIC reported INR520.5 billion (US$10.48 billion) in new written premiums, private insurers only collected INR199 billion (US$4 billion). Almost every insurance company in top 20 registered a drop in premium income, with the larger private insurers like SBI Life and ICICI Prudential reporting a decline of 19 percent and 33 percent, respectively. According to the IRDA data, the only private sector insurer to register a marked increase in income over the past fiscal year has been Metlife, a relatively new market entrant.

Indian insurance market analysts have blamed this industry-wide drop in premium income on a host of factors, including the continued absence of adequate pension products in the life market, investor indifference on once popular unit-linked insurance products, volatile market conditions, and delays on necessary product and distribution innovation. India’s life insurance sector has seen numerous regulatory developments over the past few years, not all of them welcome by market participants. The IRDA’s recent rulings on charges and agent productivity have made underwriting profitability and distribution even bigger challenges for life insurance companies going forward.

New regulations that restructured unit-linked pension products in the third quarter of 2010 have certainly impacted the life sector in a negative way. In November 2010, the IRDA unveiled new guidelines for unit-linked pension products offered by life insurers, which governed what kind of guaranteed-returns they must provide to policyholders. This caused quite a commotion in the life insurance market, with insurers arguing that they wouldn’t be able to provide such products as there are not enough long-term fixed instruments with adequate maturity available to match the tenure of Indian pension plans. After much furor, the IRDA relented and revised their norms in November 2011. The new guidelines allowed life insurers to set their own minimum guarantees on pension products but also mandated that these rates be applied irrespective of when the policyholder chose to surrender his policy. As a result, pension policies that conformed to the old norms had to be discontinued by December 31, and with no new pension products yet approved the IRDA, there is now a tremendous vacuum in the market with no pension products on offer from any Indian life insurer.

As the IRDA imposed their stiff norms on unit-linked policies, the life insurance industry moved towards conventional products. Conventional policies, such as money back or traditional pension policies, are different from unit-linked insurance policies as they are not linked to equity market behavior, with investments guided by regulations not annuities. The profitability on these single premium products is however much lower for companies, as it is a one-time sale and the insurer does not earn premium on a regular basis. This has forced companies to slow down their expansion strategies and work with thinner margins. Unit-linked pension products (Ulips), which accounted for over 30 percent of the life insurance industry’s premium income in FY2010, now amount to little over 2.6 percent of life insurer bottom lines. Given these regulatory issues, ongoing global economic volatility and inflationary pressures, sales of unit-linked policies are not expected to pick up in the short term. Overall, analysts expect fewer Ulip products to sell as people look for more concrete guarantees during these tough economic times after seeing the net asset value of their investment decline in the past year.

While Indian life insurance companies may battle with regulatory and profitability issues in the short term, the longer term forecast for their market of course remains quite bright. According to a recent Bricdata report, India will likely become the third-largest life insurance market in the world by 2015, behind only their fellow Asia-Pacific rivals China and Japan. At present, India is the 12th largest life insurance market in world and 4th in Asia.

According to Bricdata, India’s population growth and low insurance penetration rate combined with the rising awareness of the need for sufficient protection and savings services, especially amongst the younger generation, will be the key growth factors for the domestic insurance industry going forward. Furthermore, India’s domestic life insurance companies could look to make a major mark on the international insurance industry if they are able to improve their business models and capitalize on the tremendous potential available in their perhaps lucrative home market.

There continues to be continued uncertainty over whether, as well as how, China is going to include foreign workers in the nation’s social security scheme, with only 3 cities so far, including the nation’s capital, having committed themselves to registering and taxing foreign employees.

The inclusion of foreigners in China’s social security taxation structure is part of China’s health care reforms and the modernization of the country’s social welfare structure to accommodate such reforms. Through taxing expatriates, China offers them access to a number of things through the social security system such as unemployment insurance, pensions and basic medical cover. The scheme requires that the employer pays a tax of 37 percent of the employees’ salary to the state, while the employee contributes a further 11 percent, although contributions are supposed to be capped at three times the average salary in any city.

The plan to include foreign expatriates in China in the social security taxation scheme was initially announced by the central government in July of 2011, and foreigners were supposed to have commenced paying into the social security scheme in October. However, while the Chinese central government announced the new taxation on expatriates, it is the local authorities who are supposed to be implementing it through the registration of foreigners and a mechanism for how to actually pay into the social security system.

The lack of clarity over how the process should work, as well as the relatively short timeline to put necessary frameworks in place in many localities, has resulted in much confusion all around. Beijing was the only city ready to begin registering foreign workers, and even that has been rumored to be fairly unorganized.

However, two new cities have begun registering foreigners to comply with the new tax law, namely Tianjin and Suzhou. Other large centers of commerce in China, such as Shanghai, Guangzhou and Shenzhen have so far not begun to implement the new taxes for the social security scheme.

On top of the general bureaucratic chaos, both companies and their foreign employees have great concerns over the new tax and its implications. Many companies are concerned that in a business climate where it is increasingly more expensive to do business in China, the tax on expatriates’ salaries would become a drain on both business growth and foreign investment.

Foreign employees on the other hand are concerned that since much of their rights as workers are linked to their work visas, they will most likely never see the benefits they have been paying for. When expatriates lose or finish their employment in China, they must leave the country, largely rendering the benefits of the social security scheme moot.

Only in December did state media outlet Xinhua cite an unnamed social security official in Beijing as saying that foreigners who leave China will have their pension accounts kept, until they return to the country, retire, or submit a written application to drop the scheme. Although given the fact that this came out three months after people were supposed to have started paying into a scheme which they may or may not see the benefits from, it may only serve to further the sense of confusion surrounding the new taxes. While the social security scheme is similar to many other countries which include both citizens and foreigners, much needs to be done in order to clarify the scheme in order to make it reasonable.

Indian insurance regulator IRDA (Insurance Regulatory and Development Authority) is currently drafting guidelines which would allow Indian insurance and reinsurance companies to open branch offices, subsidiaries or joint-ventures overseas.

IRDA is currently circulating preliminary draft guidelines on what would be required of Indian insurance companies in order to allow them to open operations overseas. As the drafts circulate among domestic insurance companies, IRDA is asking for feedback from insurance companies before the end of 2012.

Many of the preliminary guidelines appear to be aimed at ensuring that domestic Indian insurance companies seeking to commence overseas operations are on solid financial footing to do so, and that doing so would not pose risks to local business and policyholders. As it stands now, domestic Indian insurance companies are not permitted to expand overseas, either through branch offices or investment in foreign firms, while foreign companies can currently own stakes in domestic insurers of up to 26 percent.

The draft allows for insurance companies of any category to apply to the regulator for permission to open foreign businesses after the insurers have been in operation domestically for 10 years. The proposed regulation would allow domestic insurers to start a foreign operation in a number of ways, either by opening branch offices, the formation of foreign subsidiaries by controlling the board or owning 50 percent of the paid-up equity capital, or by starting a foreign joint venture.

While many insurance companies in India have joined with foreign insurers to make joint ventures, any company that a domestic Indian insurer engaged with overseas to create a joint venture outside of India would not be allowed to enter into the domestic Indian insurance market.

Although there is a drive to make certain that Indian companies wishing to start operations abroad will have the financial wherewithal to do so without putting domestic business at risk, there are no concrete financial guidelines at the moment, whether with regards to the minimum net worth necessary to apply to the regulator for authorization or the capital requirements for establishing joint-venture’s overseas. However, the guidelines do mandate any losses incurred or capital requirements that must be met by foreign branches must be paid for by shareholder funds only, so as not to interfere with the policyholders’ funds in the domestic Indian business.

This could open a doorway to many opportunities for Indian insurance companies to globalize their business. In many places such as countries in the Middle East, there is a sizable Indian Diaspora which some insurers may already be considering tapping in to, however the opening of an office would also allow them to underwrite local business as well as expatriate Indians.

A recent forecast report by Swiss Re predicts that both life and non-life insurance lines in India, and indeed in many emerging economies, will see larger growth coming into 2012.

With the global economy poised to grow at only 2.9 percent, Clarence Wong, the Chief Economist Asia for Swiss Re sees three hurdles that insurers globally will have to overcome, namely the Euro debt crisis, emerging markets experiencing slower growth and greater inflation, and low government yields due to the prevailing economic climate.

However, Wong also sees India and other emerging markets in Asia outperforming developed markets. Wong says that “Emerging Asia is not decoupled from the developed economies and its growth is expected to slow while inflation is elevated. But policymakers have leeway to leverage monetary and fiscal policies to counter economic slowdown.”

While non-life insurance business in India seems to have performed well in 2011, growing 8.6 percent, the life insurance industry saw new business only grow by 2.5 percent for the year. This is largely seen as attributable to regulations from India’s Insurance Regulatory and Development Authority (IRDA), which were promulgated in September, 2010.

The regulations mandated that life insurance companies had to offer a capital guarantee on pension products as well as reducing the commission on unit-linked insurance products (Ulips), causing the Indian life insurance market to decline significantly. However, many see this as a good sign insofar as that it has pushed insurers and agents to reevaluate their business and products, leading to more cost-effective operations and investments.

Despite the steep decline in life insurance sales over the past year or two, Wong sees economic indicators pushing towards higher growth for life insurers in 2012. In expectation of slower economies and higher unemployment, life insurance premiums are forecast to rise by 4.5 percent across the Asia-Pacific region, while rising economic risks will whet appetites for more routine protection products. This could lead to an increase in life insurance premiums in India by 7.5 percent next year.

While non-life remained strong in 2011, the Swiss Re forecast expects the industry to slow slightly in 2012, coming down to 7.9 percent from 8.6 percent this year. This is somewhat expected, given the slowing economies in many countries around the world. However, many observers believe India’s non-life insurance sector will continue to outperform many developed economies based on continued desire for motor and health insurance products. Motor sales in India have been booming recently and the IRDA’s ruling that allowed health insurance portability between insurers makes the landscape more customer friendly.

According to Swiss Re, the rest of emerging economies in Asia are largely predicted to see strong growth in both life and general insurance industries over the next few years. Life insurance across emerging Asia is estimated to grow by a cumulative 9.5 percent in 2012, with China, Vietnam and Indonesia leading the way with 11 percent, 8.6 percent and 8.2 percent respectively.

Non-life insurance industries across emerging Asian economies are forecast to grow by a cumulative 10.6 percent in 2012, mostly due growing demand for personal accident and health insurance as well as an increasing number of car owners across the region. China Vietnam and India are expected to grow the most next year at 12 percent, 9.2 percent and 7.9 percent respectively.

The long term conclusions of the Swiss Re forecast largely mirror a Bricdata report earlier this month, with both having confidence that as economies start to normalize globally in 2012 and 2013, it will provide a solid macroeconomic background for further insurance growth and improved performance from investments.

Company Mentioned

Swiss Re

The Swiss Reinsurance Company Ltd was established in 1863 and is present in more than 20 countries. Swiss Re provides reinsurance products and financial service solutions. It offers various reinsurance products covering property, casualty, life and health insurance as well as special lines such as agricultural, aviation, space, engineering, HMO reinsurance, marine, nuclear energy, and special risks.

Singapore’s resurgent life insurance sector may finally be showing signs of slowing down, according to a new report.

In their third quarter briefing released this month, the Life Insurance Association of Singapore (LIA) revealed that sales of new insurance products in Singapore slowed to a more ‘moderate’ 18 percent annual growth rate for the three months ending in September, down considerably from the 38 percent growth in sales reported during the first half of the year. The LIA is a non-profit trade body licensed by the Monetary Authority of Singapore (MAS), and represents the interests of 16 major life insurers and 3 life reinsurers who operate in the Southeast Asian country.

According to the LIA, Singapore’s life insurance industry accounted for a total of S$523 million (US$404 million) in ‘weighted’ new business premiums for the third quarter 2011 reporting period. The LIA calculates the weighted new business premium figure by adding 10 percent of the Single Premium Index (SPI) to 100 percent of the Annual Premium Index (API), with an adjustment for premium payment terms of less than 10 years. Overall sales growth has been tempered by cautious market sentiment as investors all over the world continue to worry about the pervasive debt contagion issues affecting the Eurozone and United States. The MAS expect the Singaporean economy to be sluggish in the first half of 2012, but could pick up later in the year if global markets stabilize.

During the period under review, the LIA attributed the life sector’s continued development largely to the performance of the bancassurance distribution channel, with savings-oriented products remaining particularly popular through the second half of the year. From August to September 2011, sales of weighted regular premium products in Singapore reached S$345.7 million (US$266.8 million) , marking a 19 percent quarterly increase over the same period last year. Single premium business meanwhile rose by 16 percent to S$177.3 million (US$136.8 million). Of this amount, the LIA noted that 16 percent of sales were accounted for by the Central Provident Fund (CPF), Singapore’s mandatory pension savings and retirement fund mechanism.

The Singaporean life insurance market is divided between players holding ‘normal’ licenses and those defined as market segment insurers (DMS). DMS insurance companies, currently comprised of the following multinational insurers Friends Provident International, Generali, Royal Skandia, Transamerica and Zurich International, are registered with the MAS to operate in only non CPF-related business and with certain minimum policy size restriction. In 2011, the LIA noted that normal license holders represented 95 percent of new sales, while DMS insurers accounted for the remaining 5 percent.

Singapore’s active life insurance companies have cumulatively paid out a total of S$3.69 billion (US$2.85 billion) to associated policyholders and beneficiaries so far this year. Of these payouts, the LIA detailed that only S$342 million (US$263.9 million) came as a result of death, critical illness or other disability claims, while the remaining S$3.34 billion (US$2.58 billion)came about from maturing policies. The association also noted that, as of second quarter 2011, Singapore life insurers were managing assets worth S$120.7 billion (US$93.15 billion), a 9 percent annual increase, with non-linked business accounting for S$96.4 billion (US$74.4 billion) and investment-linked policies making up the remaining $24.3 billion (US$18.75 billion) in assets. In terms of overall manpower, LIA member companies in the Singaporean life insurance industry now cumulatively employ a total of 5,108 office staff and 12,976 sales representatives.

Explaining the results in the LIA statement, Mr. Tan Hak Leh, the Life Insurance Association President, acknowledged that while the performance of Singapore’s insurance industry could be impacted going forward by ongoing global economic uncertainty, the emerging protection needs of Singaporean consumers should provide insurers active in the market with enough impetus to achieve sustainable premium growth. “Against the backdrop of intensified global economic uncertainties in the third quarter, the life insurance industry achieved a growth in new business of 18 per cent. It is critical that life insurance companies remain vigilant and proactively manage our business to safeguard the long term financial soundness of the industry,” Mr Tan Hak Leh commented.

In addition to gross life insurance sales figures, the LIA interim report also highlighted several other insurance industry trends occurring in Singapore this year. Through the first three quarters of 2011, sales of new health insurance policies in the small Asia Pacific island nation amounted to S$123 million (US$94.9 million), up 7 percent on the corresponding period last year. Of these new health insurance sales, the vast majority, 87 percent, went towards Integrated Shield Plans and associated riders, Singapore’s quasi-equivalent of private Medicare insurance. The growth in new health insurance coverage is driven by a wide-spread recognition of increasing medical costs, which have driven consumers to obtain Singaporean health insurance in greater numbers recently. The LIA was pleased to report that as of 30 September 2011, over 2.45 million lives are covered by health insurance in Singapore, well over half the population, with paid up premiums now totalling over S$842 million (US$650 million).

As for insurance distribution channel trends through to the third quarter, the LIA found that the 12,000-strong tied agency force had contributed almost half of all the new business written by Singaporean insurers for the year, bringing in 48 percent of all weighted new business sales in 2011 so far. This performance was accompanied by an uptrend in insurance products and services sold through banks, also termed bancassurance. Indeed, bancassurance now accounts for 35 percent of all new insurance sales in Singapore, up 8 percent from last year. Financial advisers meanwhile have contributed 13 percent of new insurance sales this year and other channels, including direct sales, have made up the remaining 4 percentage points.

The LIA also noted that consumer preferences for different types of insurance products in Singapore have remained fairly consistent over the past few years. Participating (par) whole-life insurance products have remained the most popular, accounting for 54 percent of new sales, while non-participating annuities and investment-linked products split the remaining business between them. Singaporeans clearly favour the dividend options mutual life insurance companies can provide them with.

In his concluding remarks, LIA president Tan Hak Leh reiterated that while Singapore’s double-digit growth rate in life insurance product sales may not likely continue unabated into the future, robust long term planning and savings options would become more important than ever in this time of global financial market uncertainty. “While we may not face a financial meltdown similar to that in 2008, we can see consumers exercising more caution in taking on additional financial commitments,” said Mr Tan, adding that “Nonetheless we strongly advise that consumers do not shelve plans for life insurance, as it becomes particularly essential in times of uncertainty.”

Manulife Financial Corporation, Canada’s largest insurance company, has signed a new two-year cooperation agreement with Bank of China in a bid to further strengthen their bancassurance distribution network and sell more insurance products in the world’s second largest economy.

The deal was announced at a signing ceremony in Bank of China’s Beijing headquarters on Wednesday. The agreement will expand upon the existing partnership between the two firms, which has begun to bear fruit for both parties over the past 12 months. Through the terms of their updated venture, Manulife and Bank of China will strengthen their cooperative efforts on insurance and bancassurance distribution in Mainland China. At the same time, Bank of China will also be able to realize other business opportunities in North America. The framework of the new partnership agreement come into force immediately and the pact will continue for a minimum of two years.

Manulife has already established a presence in China through its joint venture wealth management and life insurance company, Manulife-Sinochem Life Insurance (MSL), which the Toronto-based insurer formed alongside China Foreign Economy and Trade Trust Co in 1996. Today, Manulife-Sinochem, which remains 51 percent owned by Manulife, has around 11,500 insurance agents, 1,100 employees, and branches in 49 cities throughout China. In May, the company signed an agreement with Bank of China, the country’s oldest bank, to distribute life insurance products through their bank branches in Beijing, Guangdong, Jiangsu, Shanghai, Shenzhen, and Zhejiang. The Bank has also become the custodian bank and distributor for Manulife’s other joint venture fund company in China, Manulife-TEDA Fund Management.

In his speech at the Beijing signing ceremony, Mr. Donald Guloien, President and CEO of Manulife Financial, explained that this new deal would enable both companies to grow their business and would build upon the bancassurance deal signed last May. “As more and more Chinese and Canadian companies and citizens look to each other’s home country for business opportunities, academic pursuits or simply as a holiday destination, we view closer cooperation between Bank of China and Manulife as an opportunity to realize business opportunities together.”

Mr. Guloien also noted that China, with its robust economy and growing middle class, will continue to be an important marketplace for all financial-services firms across Canada, especially considering the stagnant forecasts for growth in their mature domestic insurance markets. Indeed, Manulife’s decision to recommit to Bank of China follows similar moves made Canadian firms this season. In August, Power Corp. of Canada decided to enter China’s emerging fund-management industry with the purchase of a 10 percent stake in China Asset Management Co. for US$271 million. This was followed by Bank of Nova Scotia’s move in September to acquire a 19.99 percent stake in China’s Bank of Guangzhou for US$707 million. For Manulife, the bancassurance partnership between their joint venture life insurance company MSL and Bank of China will be an important source for growth in the future.

Xu Chen, a Bank of China General Manager of the Financial Institution department, was also on hand at the signing ceremony to express a similar degree of confidence in the business arrangement between the two firms. “I strongly believe that, Bank of China will continue to adhere to its customer-oriented banking philosophy, constantly and consistently offering high quality and efficient financial services to all customers. We are confident that this mutually beneficial cooperation will further promote our business development and achieve win-win prospects for both institutions,” Chen said.

China’s insurance industry has experienced rapid growth and development over the past decade and still has ample of room to grow as a result of generally stable economic forecasts combined with an under-penetrated protection market. Despite the volatility of the global financial market, Chinese insurers have remained attractive investment targets for large multinational insurance companies and investors from the financial-services sector. In 2010, total written premiums in the Chinese insurance industry reached US$221.4 billion, a 30.4 percent year-on-year increase. This considerable momentum has been able to continue through 2011 despite persistent international financial market turmoil and record catastrophe losses. According to the China Insurance Regulatory Commission (CIRC) interim report figures, total premium income reported by Chinese insurance companies exceeded US$123.95 billion during the first half of the year, a 13 percent rise on 2010 amounts. At the moment, China is ranked the sixth biggest insurance market in the world and as the second largest in Asia. Many industry observes expect the Chinese insurance market to overtake the United States and become the number one overall protection and investment market, possibly as early as 2020.

Manulife recognizes Asia as the most important market for the company’s future growth. Asia now accounts for over half (55 percent) of Manulife’s total insurance sales worldwide. Over the past nine months, the Canadian company has seen its insurance sales across Asia jump by 22 percent to US$902.4 million, with operations in Vietnam, Indonesia and the Philippines being the particular highlights. Going forward, the Toronto-based company will continue to focus on expanding insurance sales channels in these countries, in addition to innovating the range of their core offerings as the middle class consumer demand in these markets evolves and matures. Further investor involvement in this part of the world is only set to increase, as the emerging insurance markets in Asia are widely expected to outperform those in Europe and North America, with China likely leading the way.

Insurance Companies Mentioned

Manulife

Manulife (International) Limited is a member of the Manulife Financial group of companies. Manulife Financial is a leading Canadian-based financial services group serving millions of customers in 22 countries and territories worldwide. Operating as Manulife Financial in Canada and Asia, and primarily through John Hancock in the United States, the Company offers clients a diverse range of financial protection products and wealth management services through its extensive network of employees, agents and distribution partners.

Manulife-Sinochem

Manulife-Sinochem is a joint venture company between Manulife and China Foreign Economy and Trade Trust Company (a member of the Sinochem group). It was the first Chinese-foreign joint-venture life insurance company established in China. Manulife-Sinochem began operations in November 1996. To date the Company has more than 11,000 professionally trained agents and employees, providing financial and insurance services to over 500,000 customers. The company is now has operations in over 40 cities including Shanghai and Beijing, and in provinces including Guangdong, Zhejiang, Jiangsu, Sichuan, Shandong, Fujian, Chongqing, Liaoning and Tianjin.

The aggregate mortality protection gap across 12 insurance markets in the Asia Pacific region has expanded significantly over the past decade, from US$16 trillion in 2000 to US$41 trillion in 2010, according to a new study published by global reinsurance company Swiss Re.

Swiss Re’s “Mortality Protection Gap: Asia-Pacific 2011” study is the first of its kind to track the mortality protection gap across multiple developed and emerging markets in the Asia Pacific region. The mortality protection gap is a deficit measurement that represents the difference between the income needed for a working person to maintain living standards for themselves and their dependents versus the actual amount of savings and life insurance in force that would be readily available to beneficiaries when the policyholder dies. Thus the mortality protection gap grows when the proportion of protection needed is not yet covered through either adequate insurance or savings plans. Swiss Re intend for their study to encourage the life insurance industry to better engage with the general public in Asia and to better educate them on the importance of life insurance matters.

Swiss Re found a sizeable gap in mortality protection across all developed and emerging Asia-Pacific insurance markets covered by the study, with China, Japan, India and South Korea tabling the greatest long-term savings deficit estimates. Overall the aggregate mortality protection gap in Asia grew by 10 percent annually over the past decade, from a US$ 16 trillion deficit in 2000 to US$ 41 trillion in 2010. According to the data, the Chinese mortality protection gap has widened the most in this time, moving from US$ 3.7 trillion to US$ 18.7 trillion at an 18 percent compound annual growth rate. India’s mortality protection gap also expanded at double digit rates, rising from US$ 2 trillion to US$ 6.7 trillion during the same period. Of the so-called developed Asian insurance markets surveyed, Japan has consistently posted the largest coverage gap, now at an estimated US$ 8.4 trillion, although South Korea’s deficit is now expanding at twice their pace, moving from US$ 1.8 trillion to US$ 3.6 trillion at a 7 percent annual growth rate in the past ten years. The life insurance gap in Australia meanwhile grew from US$ 540 billion to US$ 927 billion between 2000 and 2010, which was the fifth largest increase seen in the region.

According to Swiss Re, a typical family breadwinner should reserve around 10 times their annual salary towards life insurance protection for their spouse and children. However, the amount of protection currently in place for many Asians is simply not enough to protect their families should the primary wage-earner unexpectedly pass away. If you were to use India’s 2010 data for example, for every US$ 100 in protection income needed there is only on average US$ 7.4 available in savings and insurance, which equates to a massive US$ 92.6 mortality protection gap. Meanwhile, these gaps in coverage present an enormous opportunity for the international insurance industry, with Swiss Re calculating the cumulative value of Asia Pacific’s mortality protection gap to be worth US$ 124 billion in potential premiums.

Concerns about the extent of adequate life insurance protection across the Asia Pacific region have also been reflected in the results of another Swiss Re study conducted between April and May earlier this year. According to ‘Survey of Risk Appetite and Insurance: Asia-Pacific 2011,’ 20 to 40 year olds in the Asia Pacific region have become much more risk averse in the past few years, with medical costs and longevity concerns fuelling the need for greater insurance coverage and financial planning. The survey found that 40 percent of those polled across Asia believed that their families could struggle financially if adverse events, like an unexpected death, transpired. The same respondents identified insurance as an important protection too, despite policy uptake of pure life insurance products remaining quite low in many Asian markets.

As the economies of the Asia Pacific region continue to grow and develop, the demand of sufficient life insurance protection will rise in tow. While the large protection gaps apparent in populous Asian markets like China and India certainly offer significant premium growth opportunities for life insurers, developing attractive products and effective distribution channels is still proving to be a challenge. In the more mature markets such as South Korea and Japan, despite the insurance industry growth potential being more limited, large mortality coverage gaps will work to drive the development of protection and savings insurance products that are targeted at more high net worth customers.

Swiss Re’s research also revealed what life insurers need to do themselves to understand and attract the next generation of consumer in Asia. The main barriers to purchasing insurance in the region are cost and lack of available funds. However while this perception that life insurance is expensive remains, over half of Swiss Re’s survey respondents indicated that they would be willing to pay at or even above market value for a life insurance product that fit their needs. In fact, many respondents revealed that once the underlying cost of cover was known, it was less than what they had expected to pay for insurance. Paul Turner, Swiss Re Head of Client Management, Global Division believes that this gap in customer perception in Asia presents a clear opportunity for the international life insurance industry to promote the benefits of insurance and their strong value propositions in order to meet the specific needs of consumers, who put strong importance on value, reputation and financial security. “This perception gap in customers’ minds is an opportunity for the life insurance sector to reach out and provide greater clarity to consumers on the relative cost and value of pure life insurance, for example, by comparing the cost of insurance with that of a cup of coffee a day,” Turner concludes.

Companies Mentioned

Swiss Re

The Swiss Reinsurance Company Ltd was established in 1863 and is present in more than 20 countries. Swiss Re provides reinsurance products and financial service solutions. It offers various reinsurance products covering property, casualty, life and health insurance as well as special lines such as agricultural, aviation, space, engineering, HMO reinsurance, marine, nuclear energy, and special risks.

German insurance giant Allianz SE has decided to withdraw from the Japanese life insurance market, effective from next year, in a bid to refocus on more profitable ventures elsewhere. From January 1, 2012 onwards, Europe’s largest insurer will halt the sale of new life insurance policies in Japan and focus only on managing existing contracts in the country.

In a statement released September 30, Allianz outlined its plans to terminate life insurance sales in Japan by year-end. The company reassured all existing policyholders in Japan that their service contracts would remain intact for the duration of their tenure. “There will be no changes for customers that hold an existing contract with Allianz Life Japan. Allianz Life Japan will fulfill all contractual agreements and continue to provide services for all existing insurance products,” the news statement read, adding that the company remained in a strong enough capital position to honor all outstanding obligations. Allianz’s five other units in Japan, including Allianz Fire & Marine Insurance Japan Ltd, will continue to operate as before, the company said.

Read the full article here.

India looks set to continue being one of the fastest growing insurance markets over the next decade, with rising income levels and awareness of risk management expected to drive a considerable demand for coverage solutions nationwide. Two new industry briefings released by India’s commerce chamber reveal that the country will be one of the few major insurance markets expected to deliver double digit growth rates across both life and non-life product lines, contributing around a tenth of total global premium growth by 2015. Indian insurers could furthermore make a significant mark and compete on the global stage if they are able to refine their business models and capitalize on the tremendous potential available in their home market.

The Associated Chambers of Commerce and Industry of India (ASSOCHAM), released statistics this week that forecast an 18 percent annual growth rate for India’s general insurance industry until 2015, with the market size increasing from US$9.8 billion at present to upwards of US$18.8 billion in five years time. Assocham based their industry projections on the increased consumer base for healthcare and automobiles, growth and investment in domestic small and medium enterprise, and a persistent demand for coverage options. “With this trajectory, India will be one of the fastest growing markets in Asia and globally – next only to China among major markets,” the report said.

According to Assocham, motor insurance will remain the largest business line in the non-life insurance sector, accounting for over 40 percent of the industry’s net premiums for the foreseeable future. India is slated to become the world’s third largest car market by 2020, behind China and the United States, with over 7 million automobiles expected to be sold annually in the country. This surge in supply in conjunction with updated road safety, coverage and infrastructure will drive growth in the motor insurance sector.

Increased spending on healthcare and infrastructure will also be integral to the further development of the general insurance industry in India. Total expenditure on healthcare, through government sponsored schemes and private sector activity, is expected to top US$200 billion by 2015 and this will create significant opportunities for the country’s emerging health insurance sector. According to Assocham Secretary General D.S. Rawat, through substantial investment and government involvement, health insurance may finally be gaining traction in India. “The health insurance segment will grow the fastest and account for close to 30 per cent of total industry premiums by 2015.” He remarked in the press briefing.

The Indian government’s upcoming 5-year economic plan, beginning April 2012, will call for nearly US$ 1 trillion in fresh infrastructure spending, updating and improving upon the country’s vast road, port, railway and power systems. This substantial investment will create many opportunities for the local insurance industry, which will need to provide cover for these new projects. Assocham predicts that engineering insurance coverage for new infrastructure projects will become a particularly important area for growth, and could develop further avenues for expansion across other commercial lines sectors as well. The private sector is also developing briskly, with the number of small and medium enterprises in India projected to rise by 20 to 22 percent over the next decade. The trade body noted that the number of companies competing in the general insurance market had already increased from 16 in 2007 to 24 in 2011, and more would be forthcoming as more government and private sector business opportunities emerge.

India’s life insurance market also presents significant growth potential. In a separate report, Assocham noted that the life sector’s annual gross written premiums of US$5.6 billion would grow by 13 to 14 percent annually and reach US$108 billion by 2015. Over the past decade, India’s life insurers reported a 28 percent rise in new business premiums, 27 percent in rise in annualized premium equivalent (APE) and a 25 percent increase in gross written premiums.

Assocham Secretary General D.S. Rawat, claimed however that while India’s life insurance market had already become one of the ten largest in the world, the local insurance industry still has to improve upon its performance standards. “The level of protection as measured by sum assured to GDP is about 55 percent relative to benchmarks in developed markets of 150 percent to 250 percent,” Rawat noted. India’s domestic insurance industry has been criticized for overtly focusing on selling short-term products and acquiring new business premiums at the expense of maintaining operational efficiency, profitability and customer retention. According to Assocham’s data, between September 2010 and March 2011, the life insurance industry has slowed down considerably, posting negative APE growth rates in successive quarters.

The Indian life insurance industry is of course learning from this. Insurers need to develop sustainable business models to solve their profitability issues and succeed in a more competitive market. Going forward, Assocham expects the industry will broaden their focus to readdress their agency model incentives to encourage selling more long-term savings and protection products to consumers. Insurance industry regulators are also likely to become involved in the near future to ensure that the Indian life market better conforms to international standards.

Assocham concludes their report by highlighting the rapid evolution of the Indian consumer and how this could affect the sale of insurance going forward. The emerging Indian middle class is at the forefront of the digital revolution, adopting the latest mobile technology and spending an increasing amount of their time and money digitally across networks. Over the next five years, mobile and internet driven micro-transactions in the country are projected to grow three to four times over. Thus it has become incumbent on insurers to enter this space to promote the value of insurance to consumers. Assocham believes this could in fact become a positive development for India’s insurance industry. “High-quality and low-cost broadband access through mobile and hand-held devices through 3G and 4G services will provide a unique opportunity to leap front legacy issues and drive innovations which can help unlock growth, reduce costs and enhance service levels.”

Organization Mentioned

ASSOCHAM

The Associated Chambers of Commerce and Industry of India (ASSOCHAM) is India’s premier apex chamber of commerce, with a membership encompassing over 200,0000 companies and professionals across the country. Assocham works to represent the interests of all industry and trade in India. The organization lobbies the national Government on policy issues and interfaces with corresponding international organizations to support bilateral economic interests. Assocham was established in 1920 by promoter chambers and represents all regions of India.

On Wednesday, French insurance group SCOR announced that they had finalized the acquisition of Transamerica Re, a life reinsurance division of Aegon, for US$912.5 million. Life reinsurance is a growing business line that helps individual insurance companies pool their risks, and accounted for almost 40 percent of Scor’s operating profit in 2010. Following final approval from all relevant regulatory authorities, Scor will become the second-largest life reinsurance company in the United States.

The deal, in development since April 26, 2011, sees the Netherlands-based Aegon divest from the majority of its global life reinsurance activities, transferring some US$1.8 billion worth of assets, securities and corresponding liabilities to Scor. Half of the mortality portfolio transferred will be in cash and US treasury bonds with the remainder comprised of investment grade corporate bonds selected individually by Scor. According to a statement released by the Dutch company this week, the total cost of the transaction will be US$1.4 billion after tax, made up of US$900 million in cash from Scor and a further US$500 million in capital released. The select reinsurance businesses still retained by Aegon after this deal will be comprised largely of variable annuity guarantee operations.

Aegon acquired Transamerica Re in 1999 as part of its US$10.8 billion purchase of Transamerica Corporation. The Charlotte, North Carolina-based reinsurance company now covers operations in USA, Europe and Asia and employs 451 people. Transamerica Re annually writes roughly US$2 billion in gross premiums and last year reported underlying earnings before tax of US$105 million. The company has been successful, with nearly a trillion dollars worth of life reinsurance now in force worldwide, and remains a market leader in the annuity, risk management, capital release market and other lines in reinsurance business.

Now that the acquisition has been finalized, Transamerica Re’s existing management and employees will be reorganized and join the Scor Global Life team to form a combined entity, titled SCOR Global Life Americas, which will be managed by former President of Transamerica, Paul Rutledge. Mr. Rutlegedge will also join Scor’s executive committee. The Transamerica Re operations based outside of America will incorporate within their local SCOR Global Life office. Scor have already defined their Global Life operational and functional responsibilities for each market. Scor has been quick to assure both their clients and Transamerica’s that a smooth transition was underway and that policyholders would soon benefit from the reinforced service offered by the combination of their two businesses, without any disruption to existing coverage and support.

According to Scor, the acquisition of Transamerica Re will expand their life reinsurance business considerably, boosting the total volume of premiums by nearly 50 percent overnight. The biggest impact will be felt in the United States, a lucrative reinsurance market that accounted for 87 percent of Transamerica Re’s underwriting business in 2010. Scor has been looking to strengthen its position in major life reinsurance markets like the US as part of the company’s 2010-2013 strategic plan, titled “Strong Momentum.” The plan broadly targets improved profitability and solvency and a rebalance between life and non-life contribution inside Scor’s portfolio. In accordance with this strategy, Scor agreed to sell its US fixed-annuity business for US$55 million in February 2011 in order to free up capital for expansion of its core life reinsurance businesses. The French reinsurer has also recently acquired the entire capital of Solareh SA, in a move to better develop value added services for its insurer clients.

For Aegon meanwhile, the decision to divest from Transamerica Re is consistent with its revamped focus on growth and earnings within their core business of life, pension and asset management, all while improving upon its risk-return profile. Aegon, with significant exposure to mature American and European markets, was one of the hardest hit multinational insurers when the financial markets collapsed in 2007-2008, and called upon the Dutch government for a bailout to avoid a complete collapse. Earlier in the year, Aegon planned to use the funds it would receive from Scor to complete a final €1.12 billion (US$1.61 billion) payback to the Dutch state. However, on July 15 the company announced that all outstanding payments to the state, a total value of €4.1 billion (US$5.89 billion), had already been completed. With that burden now lifted, Aegon can devote its energy and significant resources to both streamline its operations in the West and attempt to capitalize on the rapidly developing insurance markets in the East.

Insurance Companies Mentioned

AEGON

AEGON is present in more than 20 countries in the Americas, Europe and Asia, employing 28,000 people and serving more than 40 million customers. AEGON’s ambition is to be a global leader in helping its customers secure their financial futures and, in doing so, to grow its businesses profitably and sustainably. AEGON products include life, pensions, life reinsurance, individual savings & retirement products.

Transamerica Reinsurance

Transamerica Reinsurance is a division of Transamerica Life Insurance Company, formerly an AEGON company. It is one of the largest life reinsurance companies in the US, offering broad capabilities in risk, capital and expense managements to help companies improve the competitiveness and profitability of their life and annuity products. Transamerica Reinsurance supplies automatic and facultative reinsurance, product consulting and development and alternative underwriting solutions to more than 500 companies in North America, Asia-Pacific, Latin America and Europe.

Scor

Scor is organized through two main businesses – SCOR Global P&C and SCOR Global Life – which are leading underwriting and reinsurance providers. The group writes business in Europe, Latin America, Asia, the Middle East and the USA.

Nippon Life Insurance Company, Japan’s largest life insurer by revenue, has announced plans to expand overseas and invest €500 million (US$725 million) in a unit of Allianz SE, with the transaction expected to close later in the week. This deal marks the Japanese company’s first investment in a European peer, and it is also the first time that the German insurance giant has issued contingent capital through 30-year convertible bonds, an asset class known commonly as cocos.

The purchased Allianz subordinated bonds can be converted into equity within 10 years (and under certain undisclosed conditions apparently even earlier), which would give Nippon Life between a 1.5 to 2 percent stake in the German insurer. Nippon Life also has a venture with Schroeder’s of the United Kingdom, but this would be its first direct investment into a company in Europe.

Speaking on the deal, Nippon Life president, Yoshinobu Tsutsui, told reporters that the transaction was part of Nippon Life’s long-term business strategy to establish more robust overseas alliances as the traditional Japanese life market shrinks: “The objective of this investment is to establish a long-term partnership that is mutually beneficial for both companies,” Mr. Tsutsui said, adding “We are very pleased to have the opportunity to strengthen our relationship with Allianz, which shares similar values and beliefs with Nippon Life regarding the insurance business.”

This considerable acquisition reflects the pressing need for all Japanese insurers to search out alternative sources for growth and extend international operations, given the limited prospects in their domestic market due to both saturation and an aging population. The currency exchange rate would particularly favor acquisition activity in Europe, where the Euro has fallen against the yen by 30 percent since 2007. Despite these market conditions, consolidation efforts in Japan’s life insurance sector have remained relatively slow because most insurers are structured as mutual companies, and can thus be overtly conservative as they are owned, and held accountable, by domestic policyholders

Nippon Life has long recognized the need to generate new premium income outside their home market and have been involved with a series of overseas acquisitions in the past few years. In March, the Japanese insurer agreed to purchase a 26 percent stake in India’s Reliance Life Insurance, a unit of Reliance ADA Group, for US$680 million, which still represents the most significant foreign direct investment in the Indian insurance industry. This followed a period of interest in US-based companies, which included a US$250 million investment in Northwestern Mutual Life Insurance Co. last year, and a US$500 million venture in a Prudential Financial Inc unit in 2009.

Of Nippon Life’s Japanese life insurance rivals, only Dai-ichi Life Insurance have demonstrated similar ambitious expansion plans, recently acquiring a controlling stake in Tower Australian for US$1.2 billion in a move to gain access to the Australian life insurance market. Dai-Ichi has also invested in several emerging Asian markets, including a competitor in India. Non-life insurers from Japan have also been actively expanding their global reach. Last year, MS&AD Insurance Group acquired a 30 percent holding in Malaysia-based Hong Leong Assurance Bhd. and NKSJ Holdings acquired a majority stake in Fiba Sigorta Anonim Sirketi in Turkey, both for about US$35 million (¥27 billion).

For Allianz, the successful sale of €500 million worth of 30-year convertible subordinated notes to Nippon Life will enable the insurer to better prepare itself for the upcoming Solvency II rules, which will require EU-based insurers to hold more capital to match outstanding risks by 2014. Cocos, bonds that can be converted into equity pending pre-approved financial circumstances, are now becoming increasingly popular because they enable the issuers to raise capital reserves and benefit from a better solvency ratio without necessarily forfeiting equity. Michael Diekmann, CEO of Allianz, lauded the insurer’s deal with Nippon Life as a forward thinking move for the company: “With this transaction, we are among the first companies to participate in the growing market for contingent convertible notes,” he said in a statement. More insurers may soon test this new asset class.

Despite ongoing concerns about the economic future of the Euro zone and a fresh €300 million commitment to a second Greek rescue, Allianz Group, as a whole has continued to grow following its sound 2010 performance figures. The financial services conglomerate reported in February that annual net income for Allianz in 2010 had increased by 22.4 percent to total €5.2 billion (US$ 6.94 billion), with revenues reaching €106 billion (US$ 151 billion) and total assets under management of €1518 billion (US$ 2.17 trillion), cumulatively representing the best figures in the 120 year history of Allianz. The company has maintained itself at the forefront of the international insurance and worldwide asset management industry while looking towards mitigating policyholder risks and exploring new opportunities, despite operating in a difficult global economic environment.

While investment from Japan is welcome, other Asian countries have become pivotal markets for European-based international insurers to enter into themselves. Allianz Group has established a presence in several key emerging Asian economies through joint ventures including: Bajaj Allianz in India, Allianz China Life, PT Asuransi Allianz Utama in Indonesia, Ayudhya Allianz in Thailand and most recently, Allianz Lanka in Sri Lanka. These operations give The Allianz Group prime access to the rapidly developing Asian markets that are driving, in particular, the demand for protection, savings and investment products as the wealth of the substantial populations in these nations grow further.

Insurance Companies Mentioned

Nippon Life Insurance

Nippon Life Insurance – Japan Nippon Life Insurance Company was established in 1889 in Japan and through its subsidiaries offers various life and non life insurance products and services. Nippon Life operates in North America, Europe, Oceania, Asia, Central and South America, and the Middle East.

Allianz

Allianz Group is one of the leading global services providers in insurance and asset management. With approximately 153,000 employees worldwide, the Allianz Group serves approximately 75 million customers in about 70 countries. On the insurance side, Allianz is the market leader in the German market and has a strong international presence.

Reliance Life Insurance

Indian life insurance company, Reliance Life Insurance, is an associate company of Reliance Capital. Reliance Capital is one of India’s top 3 financial services companies by net worth. Both Reliance Life Insurance and Reliance Capital are part of the Reliance – Anil Dhirubhai Ambani Group.

Dai-Ichi Life Insurance

Dai-Ichi Life Insurance Company was founded in Tokyo in 1902 and operates in the life insurance market in Japan and overseas. Dai-Ichi Life offers whole life, term insurance, annuities and endowment products. The insurer has operations in Asia, Europe and North America offering saving and protection products for individuals and groups.

As the economies of Brazil, Russia, India and China continue to grow, increasing numbers of international insurance and reinsurance companies are seeking to enter into these burgeoning regional markets. As some of the most recent international insurers to tap new country markets have found out, not only must they balance short and long-term strategies, but also provide appropriate and appealing products to local populations, sometimes even in the middle of shifting regulatory environments.

Just last week, at the Insurance Day Conference in Bermuda, Joe Plumeri, CEO and Chairman of Willis Group Holdings, spoke about the importance of maintaining growth in the Indian health insurance market along with the markets of Brazil, Russia, and China, or the “BRIC” countries as they are sometimes called. He stated that due to these countries’ developing populations, “the wealth and insurable value that an exploding global middle class will create will be unprecedented in history. The resulting demand for insurance will dwarf the capital and capacity of today’s insurance market.” Plumeri emphasized that “the new middle class will need brokers that understand them and their industries. They’ll need carriers who are innovative, financially secure, and who are there when they need them-carriers with a reputation for paying legitimate claims quickly.” A report published by Standard and Poor’s this week reaffirmed his opinion, with S&P credit analyst Magarelli stating that India’s “non-life sector, which includes property/casualty and health insurance, has one of the lowest penetration rates in Asia.” Again asserting Plumeri’s opinion on what customers will need from carriers, Magarelli proclaimed that in order to maintain the growth of the Indian insurance market, insurers need to start focusing more on key factors such as customer service, innovation, and efficiency; currently, “the insurers’ persistently poor underwriting performance..could potentially stunt the industry’s growth if it remains unchanged.”

As the demand for insurance in Brazil grows, The Travelers Companies Inc has just purchased 43 percent of Brazilian insurance company J. Malucelli Participacoes em Seguros e Resseguros SA for US$410 million, with the opportunity to increase its stake in the company to 49.9 percent over the next 18 months. As J. Malucelli already commands 30% of Brazil’s largest market, it is no surprise that Vice Chairman and head of Traveler’s Financial, Professional, and International Insurance business segment Alan Schnitzer said that J. Malucelli’s “extensive customer base provides us [The Travelers Companies, Inc.] with an exceptional platform for expanding the joint venture beyond the surety business into the growing property and casualty market.”

In accordance with projections for growth in Malaysia’s insurance sector, Zurich Insurance Company Ltd has just purchased Malaysia’s Assurance Alliance Bhd, a subsidiary of MAA Holdings Bhd, in full. A financial holding company, MAA offers general and life insurance, reinsurance, property management, investment advising, and more; Zurich purchased the general and life insurance sectors of the company. The sale comes a few months after Dan Bardin, Zurich’s chief executive of Global Life Asia Pacific and the Middle East, disclosed that the company was interested in expanding in Malaysia, saying that now is a “great time” to focus on expansion in Asia, although it can be “an enormous task to integrate.” Unfortunately, the sale effectively removed the basis of MAA, resulting in the quick descent of MAA’s shares on the Bursa Malaysia Stock Exchange from 5 sen to 67.5 sen on a volume of 32.63 million shares. MAA is also suffering other monetary issues, as without adequate internal funding, the company may not be able to pay their final principal payment of RM140 million. Whether or not they are able to do so will depend on the profit made from the RM344 million (US$114 million) sale to Zurich.

Bardin has reported that the company is also interested in expanding to Singapore and Taiwan. Contrary to S&P credit analyst Magarelli’s opinion that India has “one of the lowest penetration rates in Asia”, Zurich Regional Chairman of Asia/Pacific and the Middle East Geoff Riddell has reported that the company is currently not looking at expanding to India due to the competing prices caused by large private life insurers entering the market already. In March, Warren Buffett’s Berkshire Hathaway entered the Indian insurance market to sell automobile policies for Bajaj Allianz General Insurance, while New Zealand/Australia insurance giant IAG currently owns a 26 percent share of the Indian sector of its business alongside the State Bank of India.

Managing Director of Swiss Reinsurance’s Corporate Solutions Division Ivan Gonzalez elaborated on Swiss Re’s goals for expansion in the future in an interview last week. With 80% ownership of Brazilian insurance company UBF Seguros, Swiss Re has already gotten a footing in the Latin American insurance market, but they hope to use this ownership to expand in and out of Brazil; to grow the company “as a business”. With an eye on the other three largest Latin American markets-Mexico, Chile, and Columbia, Swiss Re is also opening an office in Miami, in order to “be closer to the Latin America market”, Gonzalez said.

Locally, Hong Kong is also trying to maintain its global financial foothold, as the Hong Kong government has begun to talk about creating an independent insurance authority; its aim will be to enhance “regulation and development of the insurance industry”, the government said. Secretary of Financial Services and the Treasury KC Chan also stated that the authority will “reinforce Hong Kong’s position as an international financial center.”

It is clear that companies will continue expanding into Brazil, Russia, India, and China, but only time will tell if they will be able to provide customer service that will maintain a good relationship between these countries and their new insurers.

Insurance Companies Mentioned:

Zurich: Although its headquarters are in Switzerland, Zurich services customers in more than 180 countries, providing insurance for markets in North America, Europe, Latin America, and the Asia Pacific. In North America, Zurich is the second-largest provider of commercial general liability insurance and the fourth-largest commercial property-casualty insurer.

Swiss Reinsurance: As the second-largest re-insurer in the world, Swiss Re maintains a presence on all continents, providing reinsurance for Property and Casualty and Life and Health related issues, as well as risk management services for corporations.

Bajaj Allianz Insurance Company: A joint venture between global insurance giant Allianz SE and Bajaj Finserv Limited, one of the 2 and 3 wheeler manufacturers in the world, Bajaj Allianz offers health, child, and pension policies in more than 1,200 offices across India.

J. Malucelli Seguradora SA is a Brazilian insurance company that provides surety insurance.

Malaysian Assurance Alliance Holding’s Berhad (MAA Bhd) is a financial holding company that provides financial services and insurance in South Asia, dominating in Malaysia while also establishing a presence in Indonesia and Malaysia.

Berkshire Hathaway: Under CEO Warren Buffet, Berkshire Hathaway manages many subsidiary companies, including Geico Auto Insurance, and can also provide financial planning help.

UBF Seguros: is a small Brazilian insurance company that provides agricultural and surety insurance.

Willis Group Holdings: As one of the world’s leading insurance brokers, Willis provides professional insurance services, reinsurance, risk management, financial and human resource consulting, and more in almost 120 countries.

The Travelers Company: One of the largest American insurance companies and the largest writer of US property-casualty insurance, The Travelers Company provides personal, business, financial, professional, and international insurance and ranks 106 on the Fortune 500 list.

A new report published today by Standard & Poor’s (S&P), the foremost worldwide insurance rating and information agency, affirms the life insurance industry outlook in the Asia- Pacific region as generally stable, although it warns short-term investment risks may arise. S&P now assert that the pronounced economic development in the region combined with macro regulatory improvements regarding solvency requirements, risk management, and corporate governance, will lead to strong long-term growth potential for the life insurance sector in the Asia-Pacific.

In the study, Standard & Poor’s analyzed 11 life insurance markets in the Asia Pacific region, tabulating the insurance industry and economic risk scores, in addition to their market outlooks. The countries reviewed were Australia, China, Hong Kong, India, Japan, Korea, Malaysia, New Zealand, Singapore, Taiwan, and Thailand.

Few statistical changes were made as a result of this report. S&P upgraded Korea’s life insurance market outlook from stable to positive, due to increased profitability projections for life insurers in the country. Based on continued weak economic and investment forecasts for the market, Japan’s outlook maintained its negative status. S&P left the outlooks stable for all other markets examined.

Last month, S&P similarly assessed the performance of non-life insurance markets of Asia-Pacific. Japan and New Zealand’s non-life insurance market outlooks were revised to negative from stable, due to the expected impact the recent earthquakes there will have on reported earnings and capital margins. India’s market was criticized for questionable underwriting performances while China and Malaysia’s markets were upgraded from stable to positive to reflect their solid growth momentum.

Paul Clarkson, credit analyst for S&P, explained the agency’s appraisal of insurance development in the Asia Pacific: “We believe the region still has tremendous growth potential despite challenges. Risks to our outlooks include high inflation, withdrawal of reinsurance capacity, increased pricing and investment market volatility.”

S&P acknowledges that the Asia-Pacific region includes a diverse set of life insurance markets all across different stages of maturity. Despite these variances, the ratings agency has observed enough common positive economic, infrastructure and regulatory indicators to support the stable credit profiles of the region’s life insurance companies.

Despite the generally favorable conditions, the S&P analysis warns however that the current volatile investing environment poses a risk factor for the financial profiles of Asia insurers, as it does in other markets. A shallow investment market combined with a deficit in longer tenor assets to match liabilities will continue to challenge asset-liability management efforts in many Asian life markets, including Japan.

At Standard & Poor’s 27th Annual Insurance Conference 2011, industry analysts confirmed that life insurance has remained a sector facing undue pressure by the persistently low interest rate environment resulting from asset and liability durational disparity. These low rates have impacted the long-term returns and capitalization life insurers need to sustain their operations.

The level of volatility thankfully remains far below that occurring in the aftermath of the 2008-2009 global financial crisis, and S&P reports that multinational insurers have learned valuable fiscal lessons from the event. The further implementation of comprehensive risk management practices and oversight in the insurance industry should mitigate the lasting effects of financial market unpredictability.

Many central banks in the Asia-Pacific region have responded to rising inflationary pressures by raising interest rates. In S&P’s view, higher interest rates could have both positive and negative connotations on performance for the region’s life insurers. A rise in interest rates in mature life insurance markets, where ongoing negative interest spreads impact life insurer profitability such as in Japan, Korea and Taiwan, will result in narrowing the negative carry and improving company earnings. Meanwhile, higher rates could also lead to a spike in surrenders of fixed-interest policies and make liquidity management more complicated for insurers in Asian markets where such policies are popular.

S&P concludes that the solid operating fundamentals in both life and non-life insurance markets in the Asia Pacific can overshadow the challenges facing in the region. Economic development throughout the continent, coupled with positive investment performance and favorable overall operating performance has enabled insurers to strengthen their financial profiles and could rebuild balance sheets enough to weather the next market downturn. In addition to the above factors, S&P has given a stable outlook for most Asia-Pacific insurance markets because there is an expectation of continued strong premium growth due to low penetration rates within all emerging markets, and increased demand due to evolving customer needs in the mature insurance markets.

Companies Mentioned

Standard & Poor’s

Standard & Poor’s (commonly referred to as S&P) is a business branch of publishing house McGraw-Hill. Operating out of 20 countries, S&P provides the investment community with independent credit ratings on important financial vehicles such as stocks, municipal bonds, corporate bonds and mutual funds. In addition to its risk management, investment research and credit rating services, Standard &Poor’s is known for its indexes, in particular the S&P 500 index.

In a case that truly represents the duplicitous times we are living in, American life insurance firm Coventry First LLC has filed a lawsuit this week against an anonymous internet critic who periodically sent out fake Twitter messages which parody the insurer and make them appear to root for the death of its policy holders to boost profits amongst other fraudulent claims, Reuters reports.

The case, ‘Coventry First LLC v. Does 1-10,’ was filed on Tuesday in Philadelphia federal court. Coventry First filed the suit against an anonymous Twitter user known as @coventryfirst on allegations of trademark infringement and unfair competition. The insurer is seeking an order to take down the parody Twitter account as well as monetary damages. Coventry First argues that the online account violates its trademark and the numerous ‘tweets’ about the life settlement industry would cause further confusion in the marketplace. Twitter Inc. is not a party to the suit.

The Twitter account in question, @coventryfirst, has a picture of a dollar sign as its avatar and has published 14 posts so far with farcical messages such as “the faster people die the more coventry first profits! not even cig companies want their customers to die as fast. natural disasters are good for business!” and “horrible weekend … no plane crashes (they make a lot of money), no earthquakes.” The posts first began appearing on May 27, the account currently only has three followers.

Coventry First, which describes itself as the creator and leader of the secondary market for US life insurance, said the use of its trademark in such a fashion “tarnishes the reputation” of the entire company, “as it uses the mark in connection with language derogatory to plaintiff and to the life settlement industry generally, and is of a lesser quality than that which consumers expect from statements being made by plaintiff,” the complaint read. (available here)

In addition to scurrilous statements issued on its behalf, Coventry First maintains that the account’s use of its name and the phrase ‘Don’t miss any updates from Coventry First’ further infringes on its trademark, according to a Law360 article. The US insurer is also filing suit for unfair competition, false designation of origin, violations of the Anti-Cybersquatting Consumer Protection Act, trademark dilution and unjust enrichment. The company has also issued a subpoena towards Twitter, asking the social media firm to disclose the identity of the account holder.

“Consumers are likely to believe that the site is somehow related to plaintiff, when it is not,” Coventry First added, in reference to the Twitter account.

Parody accounts of companies and public figures have become commonplace on Twitter, and often act in opposition to the reputation of their representative at times of great controversy.

Coventry First’s chances of shutting down the offending Twitter account appears uncertain due to US courts’ obligations to balance the right of brand owners against overall free speech values offered in the First Amendment. The courts will require substantial evidence proving commercial use by @coventryfirst before they will be able to determine if an infringement has occurred. To further prove a trademark claim, Coventry will also have to show that the fake Twitter account is leading to actual confusion in the minds of consumers.

There are currently much greater threats to businesses who wish to operate and maintain a presence on the internet. On Thursday, Citigroup Inc., the third largest US bank, disclosed that computer hackers had acquired limited personal information on about 200,000 credit-card holders, the second announced breach they had suffered this week. The financial institution said it would mail new cards to affected customers.

The attack comes amidst a host of cyber intrusions into predominant multinational companies, including Google, Sony Corp, EMC, Lockeheed Martin and L-3.

Online hackers are fast becoming the greatest threat to business today. As commerce continues to move online, the gap between technological innovation and the ability to protect data offers criminals an opening to launch attacks and steal sensitive industry information.

Security experts revealed that the cyber-attack on Citigroup may be a watershed moment for the US banking industry, which until now had suffered fewer direct hacker attacks than other retailers. This event could ultimately drive momentum for a systemic overhaul of the industry’s existing data security measures.

“We’re getting to the tipping point in terms of the number of fraud cases,” said Gartner Research security analyst Avivah Litan. As industry regulators determine whether to require more spending on network security, “this could be the straw that breaks the camel’s back,” she added.

Insurance Company Mentioned

Coventry First LLC

Founded in 1999, Coventry First is a leading player in the secondary insurance market. The company offers investments in high-premium life insurance policies, written on elderly or wealthy executive individuals looking to sell. In a secondary life insurance transaction the policyholder gets a lump sum, Coventry pays remaining premiums, and when the policy is realized, Coventry receives the payout.

Last Saturday at the sixth Annual World Takaful Conference in Dubai, Ernst and Young predicted that the worldwide Takaful insurance market would reach a value of $12 billion USD in 2011; the prediction was announced in the Ernst and Young World Takaful Report 2011: Transforming Operating Performance, and represents an increase of 31 percent from $9.15 billion in 2010. Takaful, an Islamic-compliant insurance concept, is a rapidly growing industry concentrated mainly in Saudi Arabia (making up $3.86 billion USD of the industry in 2009), Malaysia ($1.15 billion USD), UAE ($640 million USD), South East Asia, and North Africa.

In the past year, most GCC Takaful markets have slowed down. “The Takaful industry and its core markets have experienced another challenging year, where positive signs of economic recovery and improved business sentiment were shaken by the socio-political uncertainty witnessed across the Middle East and North Africa (Mena) region in the first quarter of 2011,” said Ashar Nazim, an executive director and Islamic financial services leader at Ernst and Young.

Despite the slowdown in the sector, global growth estimates are predicted to remain on track to reach $12 billion in 2011. “The industry’s not without risk, but its potential remains an important feature of Muslim emerging markets for many indigenous and global insurance players,” said Nazim. He goes on to add, “the (Gulf Arab region) is a competitive market with a large number of players and will drive growth for the industry… Key Takaful markets are characterized by low insurance penetration rates and comparatively high rates of economic growth.”

Other key challenges for the growth of Takaful insurance products include a lack of expertise and the ongoing socio-political instability across much of North Africa and the Middle East. Ernst and Young also said that changing regulations and misaligned cost base also hinder the growth of the market.

The Saudi Takaful market, however, proves to be an exception to the global slowdown in the Islamic insurance market. RNCOS, a research and analytical consultancy, recently released its industry report, which said that, “We have found that Saudi Arabia has emerged as the largest market for Takaful insurance, followed by Malaysia. Takaful insurance is growing at an annual growth rate of 15-20 percent globally, but it will grow at faster rate in Saudi Arabia because premium paid by the insured people is considered as donation and not premium.” In addition, with the recent mandate of compulsory health insurance for private employees, the health insurance market is expected to grow at an even faster pace.

The report forecasts that the general insurance category of Takaful products will grow at a compound annual growth rate (CAGR) of more than 24 percent from 2010 to 2012, due to increasing demand for motor and energy insurance. Property and aviation insurance policies are also expected to emerge as fast growing segments of the general insurance sector.

Similar to Saudi Arabia, other Gulf States’ insurance industries have also experienced a boost, in part due to compulsory health insurance for foreign employees, and a push towards private health insurance. The Kuwait National Healthcare system is currently pushing for a new private health insurance scheme in order to meet overcrowding, long waiting times, and a general growing dissatisfaction with the public health sector.

Bahrain National Holding (BNH) is also growing despite the political turmoil occurring in the country. In its annual shareholder meeting on March 29^th, 2011, BNH announced that it remains adamant about continuing with plans on expanding its services throughout the Gulf region.

Sudan, which contributes $340 million USD to the Takaful insurance industry, is currently the largest market outside the Gulf region. However, Egypt, Bangladesh, and Pakistan’s Takaful industries are all growing quite rapidly.

In fact, Egypt could even stand to benefit from the ongoing regional instability. The UAE-based Salama Islamic Arab Insurance’s chief executive stated that turmoil in the Egyptian market has not only resulted in more claims, but has also generated more interest and awareness of Takaful insurance, which creates more demand and unprecedented opportunities for the market.

Regionally, the Indian subcontinent’s Takaful contributions have increased by 85 percent, making it the fastest growing Takaful market in the world. The next fastest growing market is the Middle East, which has grown by 40 percent, followed by the GCC (31 percent), South East Asia (29 percent), and Africa (26 percent).

In terms of individual countries, Indonesia had the largest Takaful market growth rate with 67 percent. It is followed by Bangladesh with 58 percent and Saudi Arabia with 34 percent.

The overall Malaysian insurance industry is also growing at a rapid pace with 12 percent projected growth in 2011. The Malaysian Takaful Association attributes this predicted growth to the expansion of the Takaful industry into rural areas of the country. There is a large interest in Takaful products. With only a 10 percent market penetration, there is much room for improvement and growth.

Generally, the Takaful industry receives a lower return on equity (RoE) because of the intense competition that small local insurers encounter from more established firms who have had experience in the conventional insurance market.

For the GCC, conventional insurers received an average RoE of 11 percent, while the Takaful insurers announced an average of 10 percent in 2010.

In Malaysia, the disparity is even greater with an average RoE of 16 percent for conventional insurers and 6 percent for Takaful companies. This difference, however, may arise from a significantly lower claim ratio than the GCC, mostly because of differences in business lines.

Also, in the GCC, the Takaful market is dominated by general insurance, while in Malaysia it is dominated by family Takaful. In the Mena region, the family Takaful market is still underpenetrated, contributing to only 5 percent of gross global annuals premiums, while conventional life insurance contributed to 58 percent. In comparison, in Malaysia, the family Takaful industry contributed to 77 percent of gross annual premiums in 2010.

Insurance Companies Mentioned

Bahrain National Holding

BNH, established in 1998, is based in Manama, Bahrain. Together with its many subsidiaries, BNH provides insurance and risk management solutions for many industries and individuals in the Gulf region.

The Insurance Regulatory and Development Authority of India (IRDA) announced that will soon allow private insurance companies to put forth their initial public offerings (IPOs), and raise funds through the stock market to further fund their individual expansion plans.

Speaking at the 14th Annual Conference on Insurance, ‘India Insurance: Turning 10, Going on 20’, IRDA Chairman Mr J. Hari Narayan stated that the IPO guidelines and regulations would be in place by the end of April. “Several insurance companies will be completing 10 years in business, later this year. Our IPO guidelines must be in place by the end of this month,” he said.

The proposal permitting the listing of insurance companies on the Indian stock market has been pending for almost 3 years. The Standing Committee on Finance in India’s Parliament is expected to finally give its report on the Insurance Laws (Amendment) Bill 2008 by the end of the month. The bill is projected to grant the insurance regulatory authority more autonomy and flexibility, in addition to increasing the capacity of foreign equity in insurance joint ventures to 49 percent, significantly higher than the previous level of 26 percent, among other provisions. Chairman Narayan explained the impact of the bill: “The changes in the regulatory environment will not bring in more regulation, but better regulation of the insurance sector with a view to widening and deepening the market.”

The current law technically allows any company to become listed on the Indian stock exchange after successfully completing 10 years of operations in the country. A number of joint venture insurers, including HDFC Standard Life and ICICI Prudential Life Insurance, qualify under the present standards with several more companies set to complete a decade of service shortly. The IRDA is expected to allow public float by insurance businesses that have been in the market for at least 10 years and have demonstrated three successive years of profit.

At present, excluding the State-run Life Insurance Corporation, there are 22 private life insurance companies operating in India. The general insurance sector features 21 companies. Several of these private insurers, including the aforementioned HDFC Standard Life and Reliance Life, have sounded out an interest in tapping the global capital market to improve their resource base. Financial Services Secretary Shashi Kant Sharma forecasts that, once the new guidelines are established, we will see increased movement throughout the insurance sector: “The coming decade will see lot of activities in the insurance industry. Keeping in view the immense business potential in tapping Indian insurance market, we expect more foreign joint ventures to materialize and slew of IPOs in the sector.”

At the conference, the IRDA also discussed impending adjustments on premium rates for non-life insurance policyholders. Insurance companies in India are looking to raise cover prices in conjunction with industry growth, and to better enable themselves to set aside more capital for claim settlements. Several insurers have incurred significant losses in the current fiscal year, particularly in regards to motor insurance. As Chairman Narayan explains, the IRDA has increased provisioning requirements and further supports attempts to help insurers enhance their solvency margin and better insulate themselves from losses. “Because of the requirement of increase in provisioning, there will be a reduction in capacity and because of that there will be a hardening of prices. I think the demand and supply position in the non-life industry will be such that prices should harden… I would like to make it even harder as we go along,” the Chairman said.

The IRDA Chairman conferred that, in the next few years, insurance companies in India will see changes to both regulatory development and distribution channels within the industry, and companies will need to evolve their marketing, pricing and claim settlement systems to remain effective. “The agency model that we see right now has serious deficiencies and that requires to be strengthened. I do not think the agency distribution model is going to last very long.” The Chairman further predicted that Indian health insurance and pension-linked insurance products would eventually gain predominance in the market.

Mr. Sharma further added that the insurance industry would need to work hard to promote its products, and increase awareness about the benefits of insurance among the populace. “It would be difficult to market insurance policies in rural areas purely on commercial or non-subsidized rates as the cost of marketing and servicing in such areas would be much higher,” he said. Insurance consciousness and penetration in India has been particularly low outside the large cities, despite almost 70 percent of the population residing in rural areas.

The insurance industry in India was first opened up to the private sector in 1999. In the following decade, total insurance penetration has doubled, rising from 2.3 per cent of the GDP in 2001 to 5.2 per cent of GDP for 2011. According to industry analysts, premium income for the Indian insurance market is projected to reach $350-400 billion by 2020. There has been a substantial rise in insurance coverage, with both the number of life and health insurance policies increasing many times over.

Despite these promising figures, the insurance sector has been hampered by profitability issues – premium density is currently a paltry US$4.4 dollars – and financial issues aplenty for non-life insurance companies. While insurers in India are trying to improve their underwriting losses through regulating more practical premium prices for certain types of coverage, there remains a heavy reliance on investment to support operations. Raising the foreign direct investment cap from 26 to 49 percent, as proposed in Insurance Laws (Amendment) Bill 2008, would help inject funds, technical knowledge and expertise into these domestic insurers who are looking to grow. In addition to this, the IRDA’s continued stewardship in adapting international best practices will be critical in developing India’s insurance market further.

India has tremendous economic potential due to its large labor force and rapidly growing middle class. The projected increase in per-capita GDP will correlate with an increased demand for a wide variety of insurance and investment products.

Goldman Sachs has successfully bought a 12.02 percent stake in Taikang Life Insurance Co Ltd, China’s fifth-largest insurer by premiums. Announced in a joint statement on Friday, April 8th 2011, the acquisition gives the US Investment bank a long-sought-after foothold in the world’s largest insurance market.

“The two companies will strengthen cooperation in corporate governance, risk management, investment management and product development,” the joint statement read.

The stake purchase was approved by the China Insurance Regulatory Commission (CIRC). The financial details of the deal were not disclosed. Market estimations place the acquisition cost for Goldman Sachs at around USD$900 million for the shares.

Goldman’s purchased the shares from French insurer AXA SA. Last month AXA announced that it has been given regulatory approval to sell its 15.6 percent stake in Taikang Life to a group of investors for USD$1.2 billion. AXA originally inherited the stake through the acquisition of Swiss insurer Winterthur in 2006, and have subsequently been looking to sell their shares since 2009. Regulations in China prevent foreign investors from holding multiple assets in the Chinese life insurance sector, and AXA are also involved in a joint venture with the Industrial & Commercial Bank of China and China Minmetals Corp.

Goldman Sachs was announced as the preferred bidders last year, bidding high and beating out the Blackstone Group and Temasek Holdings, among other notable entrants in the Taikang auction. Japan’s Softbank Corp and two state-owned Chinese enterprises, China Guardian Auctions Co. and New Deal TEDA Investment Ltd, were the other firms who purchased the shares sold by AXA. Goldman Sachs’12.02 percent holding now makes them the second largest shareholder in Taikang Life.

Speaking at the signing ceremony, Goldman Sachs Vice Chairman and Chairman of Asia, J. Michael Evans spoke of his delight at having successfully completed the acquisition. “We are thrilled to have the opportunity to be an investor, to participate in the continued growth of the insurance industry in China,” Evans said. A deal with AXA had been established last year but attaining Chinese regulatory approval has been a protracted process, particularly as it had involved the transaction of an ownership stake in a state-owned asset.

Goldman Sachs has had prior insurance investment experience in China, having previously purchased a stake in Ping An Insurance Co. along with Morgan Stanley in 1994. Goldman’s, however, is now using its own balance sheet in buying the Taikang Life stake, while previous Chinese investments were purchased through the company’s private equity arm. Industry analysts conclude that this direct investment move by Goldman Sachs was made to avoid conflict with new U.S regulations, which will require banks to wind down their positions in private equity and hedge fund activity. Goldman’s is furthermore looking to diversify its investment portfolio to combat the relatively mediocre performance projected in the global commodities and currency trading industry.

Beijing-based Taikang Life stated it had gross premiums of CNY86.77 billion (US$13.22 billion) for 2010. The company has branch offices in 28 different Chinese provinces, assets in excess of CNY290 billion (USD$44.34 billion), and more than 54 million customers throughout the country. Taikang is expected to be China’s fifth listed insurer when the company eventually submits its IPO, alongside existing providers China Life Insurance Co., China Pacific Insurance Co. Ltd., Ping An Insurance Co. of China Ltd., and the Hong Kong listed PICC Property and Casualty Co.

Chen Dongsheng, Founding Chairman and Chief Executive Officer of Taikang Life, said the insurer plans to collaborate with Goldman Sachs to develop investments and expand abroad: “I look forward to working in close cooperation with this world class financial institution as we continue to commit ourselves to the development of China’s life insurance market and strive to become more global.” Analysts predict that, as a shareholder, Goldman Sachs will facilitate Taikang’s initial public offering relatively quickly. An IPO in Hong Kong would look to raise between USD$3 to USD$4 billion.

The Chinese insurance market has been seen as a lucrative investment destination for many large multinational investors from the financial-services sector. Industry analysts predict China and India (both of which presently have a low market penetration rate for life insurance) will become the main drivers of global life insurance premium growth, as persistent economic growth in these large countries will boost the size and purchasing power of their middle class. In 2009, the Chinese life insurance market generated USD$124 billion in premium income. Credit Suisse projects that this figure will grow by more than 20 percent per year for the next decade. Foreign insurance companies have normally found success in China through investing and operating through joint venture partners with another major local insurance conglomerate.

Goldman Sachs’ asset-management rivals have already been generating strong returns through their investments in China. The Carlyle Group’s venture in China Pacific Insurance is projected to have it’s best ever exit, profiting six times on its investment, after it recently sold down a US$2.6 billion stake. TPG sold a US$2.4 billion stake in Ping An Insurance last year, an estimated return of around 16 times its acquisition cost. In February, Zurich Financial Services agreed to sell 5 percent of it’s holdings in New China Life Insurance Co Ltd. for US$500 million, retaining a 15 percent stake in an asset they had invested a reported total of $131 million in, now valued at about US$1.5 billion.

Companies Mentioned

Goldman Sachs Group

Goldman Sachs Group Inc. is a global investment banking and securities firm which engages in investment banking, securities services, investment management and other financial services primarily with institutional clients. Goldman Sachs was founded in 1869, and has offices in all major international financial centers, and provides mergers and acquisitions advice, underwriting services, asset management, and securities services to its clients, which include corporations, governments and high net worth individuals around the world. The firm also engages in proprietary trading and private equity deals. It is a primary dealer in the United States Treasury security market.

Taikang Life

Taikang Life Insurance was founded in Beijing in 1996 and offers life, annuity and health insurance through 120 offices throughout China,

AXA

AXA Group is a worldwide leader in Financial Services. Headquartered in Paris, the AXA Group companies are engaged in life insurance, health insurance and asset management services among others. AXA’s operations are diverse geographically, with major operations in Europe, North America and the Asia/Pacific area.

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