India Market. Non-Life Insurance Update. Introduction. In this issue. Industry statistics. Market update. Regulatory update. Distribution.

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1 India Market Non-Life Insurance Update India Issue 16 December 2010 Introduction We are pleased to circulate our latest quarterly newsletter on the developments concerning the non-life insurance industry in India. The non-life industry in India continues to grow on healthy lines, with more focus by insurers on the retail segment. As covered in detail below, major changes in the regulatory environment that occurred during the quarter include the ban on sale of credit insurance cover, issuance of regulations governing Expenses of Management, as well as the release of guidelines by the Insurance Regulatory and Development Authority (IRDA) allowing circles of the India Post to act as corporate agents for insurers. Except Reliance General Insurance all insurers have recorded healthy growth rates in their gross premium collection in the seven month period April to October We hope you continue to find the newsletter interesting and informative. We would particularly like to receive your feedback on how we can improve this Newsletter over time to increase its value to you. Towers Watson Risk Consulting, India In this issue Industry statistics Market update New/potential entrants Appointments News about industry players Other news Regulatory update Distribution Products Contact details Copyright 2010 Towers Watson. All rights reserved. towerswatson.com 1

2 Industry statistics April to October 2010 ICICI-lombard Bajaj Allianz IFFCO-Tokio Reliance General HDFC ERGO General Tata-AIG Royal Sundaram Cholamandalam Shriram General Future Generali Bharti AXA General Universal Sompo * Companies with less than one per cent market share have not been reflected in the graph. Source: IRDA During the first seven months of the current fiscal, private insurers collectively earned a gross premium income of Rs100.7 billion, registering a growth of over 25 per cent over the same period last year. The overall industry grew at 23 per cent, with the gross premium collection during the said period amounting to Rs241.6 billion. ICICI Lombard maintained its position as the market leader amongst the private insurers, with a market share of 25 per cent. The company reported gross premium collection of Rs25.4 billion in the first seven months of FY , registering a growth of 33 per cent over the same period last year. Reliance General was the only private sector player to register a negative growth in the period under review. The company recorded a decline of 22 per cent in the premium income during the period. New India United India National Insurance Oriental Insurance Source: IRDA Gross new premium income for private sector (in Rs millions) 0 5,000 10,000 15,000 20,000 25,000 30,000 April 10 to October 10 April 09 to October 09 Gross new premium income for PSU companies (in Rs millions) 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 April 10 to October 10 April 09 to October 09 The four state-owned companies continued to maintain their dominance with a combined market share of 58 per cent. Among the state-owned companies, while New India continued to be the leading insurer with gross premium income of Rs41.8 billion, National Insurance registered the highest year on year growth at about 29 per cent. Market update New/potential entrants Reports suggest that Liberty Mutual, American non life insurer and Videocon Group of India, are planning to enter into a joint venture for floating a general insurance company in the Indian market. Appointments Bharti AXA General Insurance has announced the appointment of Sampath Kumar as its chief financial officer (CFO). Reliance General Insurance has appointed Vijay Pawar as the executive director and the chief executive officer (CEO). The IRDA announced the appointment of M. Ramaprasad, the newly joined member (Non-Life) as the chairman of the General Insurance Council in the place of K. K. Srinivasan, who retired from the services of the Authority. News about industry players Bharti Axa General Insurance is reportedly planning to infuse Rs2.6 billion as share capital over the next two years, out of which Rs0.6 billion is expected to be funded in the immediate future. The current capital base of the company stands at Rs4.6 billion. The insurer has drawn up plans to increase revenue by 70 per cent in FY and expects to break even in the next fiscal. L&T General Insurance Company, the recently licensed insurer promoted by the engineering major L&T has rolled out 10 products till now and aims to break even in the next 5 to 7 years. Reliance General Insurance Company reportedly has narrowed its losses to Rs0.28 billion in the September quarter of FY from Rs0.39 billion in the same quarter in the previous financial year. Given that the losses to a large extent were on account of health insurance schemes of the company, Reliance General has repriced its health products and significantly reduced its exposure to the Group Mediclaim product. The Oriental Insurance Company is targeting a premium income of Rs54.7 billion in FY , growth of around 17 per cent over the last year. The company continues to decentralise its claim management function and has recently opened its 21st Claims Service Vertical Centre at Madurai, aimed at improving the turn around time for claim settlements. United India Insurance Company is reportedly targeting a reduction in its underwriting losses to Rs8 billion during FY from Rs8.8 billion during FY Meanwhile, the NDTV Business Leadership Awards 2010 has adjudged United India Insurance Company as the best Non Life Insurance Company for the year. Copyright 2010 Towers Watson. All rights reserved. towerswatson.com 2

3 Other news According to a recent study by a global broking firm, the general insurance premium rates in India are witnessing an upward trend in some sectors such as employees liability, property covers, motor, trade credit and Directors and Officers (D&O) liability. Following the recent incidents involving oil spills, such as the British Petroleum oil spill in the Gulf of Mexico and an oil spill off the coast of Mumbai, global oil companies are now actively seeking Environment Pollution Legal Liability Insurance cover to secure their Indian operations. Tata AIG General is reportedly close to finalising a deal on the subject worth US$5 million. ICICI Lombard and HDFC Ergo have underwritten such policies worth US$2 million since the time of the oil spills. According to reports, the tussle between leading hospitals and health insurance providers continues, nearly five months after the state owned general insurers initiated the Preferred Provider Network (PPN) to bring treatment discipline and billing on hospitals alleged to be indulging in over-invoicing insured patients. Top corporate hospitals in Delhi and Mumbai such as Apollo, Fortis, Max Healthcare, Breach Candy and Bombay Hospital are said to resisting the PPN network on account of differences related to the price points proposed by the insurers for various medical procedures. General insurance companies are seeking greater freedom to formulate packaged products as they are of the opinion that offering greater variety of packaged products will be beneficial for the industry and the consumers. Currently, the IRDA guidelines on combi-products limit the combination of insurance covers to a pure term life cover offered by life companies and health insurance cover offered by non-life companies. General insurance companies are increasingly focusing on selling comprehensive insurance solutions to educational institutions and their students. Such covers are against natural calamities, offering a host of other benefits, such as property insurance, group personal accident insurance for students, teaching and non teaching staff and in some cases, cover for parents of the students. Bharti AXA General is one such company active in this segment and is said to have covered around 100 schools. There is also a surge in demand for D&O Liability policies from business houses that have availed Private Equity and/or Venture Capital funding at the behest of such funding agencies. D&O is still a small business segment in India accounting for about 3 per cent of gross industry premium. Regulatory update Implementation of Integrated Grievances Management System Following up on its Grievance Redressal Policy, the IRDA has communicated to all insurers that it is in the process of developing the new Integrated Grievances Management System. This facility would allow customers to electronically register and follow up their complaints with insurance companies. Insurers are required to set up infrastructure in compliance with the said grievance settlement procedure in order to bring about consistency between the IRDA and the insurers. The insurers had been asked to nominate professionals from their IT and Grievance cell to facilitate a smooth integration process. India Post to become a licensed corporate agent The IRDA has allowed the Department of Post to act as corporate agent of insurers by treating each of the 22 circles of India Post as separate units. Each circle will be allowed to tie-up with a maximum of two non-life, two life, one agricultural and one stand-alone health insurance company. Exposure Draft on Standard Insurance Product Rural and Social Sector In September 2010, IRDA released an exposure draft on a Composite package of standard insurance product for Rural and Social Sector, intended to encourage designing of policies that could meet most of the insurance related requirements of the rural and social sector, across life and general insurance. The product structure would be that of a combi product allowing bundling of term life/pension option on the life side and a variety of options on the non life side. Credit insurance covers In September 2010, IRDA has directed all general insurance companies to ensure that credit insurance policies offered by them are not of the credit default insurance type, since such policies as semi-financial instruments would need to be regulated separately. The Authority has advised all insurers to stop selling such policies till such time the regulator comes out with specific guidelines for the same. Expenses of management In a circular issued in October 2010, IRDA noted that there were differences in the interpretation and hence in the reporting of Expenses of Management by general insurance companies while complying with the provisions stated under section 40C of the Insurance Act 1938, read along with Rule 17E of the Insurance Rules To ensure uniformity of understanding of the said provisions across companies, the regulator provided explicit clarifications of the provisions in the said circular. Copyright 2010 Towers Watson. All rights reserved. towerswatson.com 3

4 Working Group on Convergence of IFRS The regulator has constituted a working group to review the issues raised under various exposure drafts relating to various IFRS provisions relating to convergence and their implications for insurance companies. The working group is expected to submit the report by March Distribution Bharti AXA General Insurance has partnered with the Karnataka State Insurance Cooperative Society Limited, a cooperative institution taking deposits and issuing loans to members, mostly in the rural parts of the state. The insurer would offer customised group insurance products for the members of the society. Tata AIG General has entered into an agreement with the low cost private airline, Indigo Airlines, to offer domestic travel insurance cover to its passengers. Cholamandalam MS General Insurance has launched an 'e- Policy' system for its intermediaries and customers. The system will enable the intermediaries to access the list of all the policies generated online on a real time basis. IFFCO Tokio General Insurance is planning to focus on rural and semi urban areas by setting up Bima Kendras and through the 36,000 cooperatives of IFFCO. LICHFL Financial Services Ltd., belonging to the group of Life Insurance Corporation, has entered into a corporate agency arrangement with United India Insurance to distribute the latter's non-life products. United India will facilitate training, capacity building and technical expertise. As part of its pan India expansion plan, L&T General Insurance Company has opened its first branch in Orissa, key market in the eastern region. New India Assurance has entered into collaboration with the leading auto repair workshop chain, Carnation Auto, to provide cashless insurance cover in Kochi in the state of Kerala. Products Bharti AXA General Insurance is planning to launch six new products across the health, motor and commercial segments, which includes a product covering foreign travel medical insurance needs of customers. The company also plans to introduce a retirement policy under health insurance segment, which is expected to be filed with the regulator soon. Tata AIG General Insurance has introduced an offer for insuring the high value automobiles. The insurance policy aims to offer bespoke protection for premium cars, collector cars and vintage cars in addition to replacement of high value cars in the event of any damage. Marsh India, an insurance brokerage firm has proposed a product to protect against contamination of drinking water offered to water utilities companies. The cover is viewed as innovative considering the limitations of traditional property and liability policies in providing protection against severe water contamination incidents and the adverse regulatory, financial and reputational impact to the utilities arising there from. Max Bupa has recently launched a health insurance policy called Family First which covers the extended family of the policy holder. The policy is structured in a manner wherein every family member can be covered for a specific sum individually and in addition there is a floater sum assured that would be available collectively for all members, just in case any member were to incur medical expenses in excess of the individual sum assured opted for him/her during the policy term. The Government, has approved a Modified National Agricultural Insurance Scheme in terms of which private general insurance firms are proposed to be given a role to participate in the government-subsidised Crop Insurance scheme, which has hitherto been the preserve of the state owned Agricultural Insurance Corporation of India. The company is awaiting regulatory clearance for rolling out a combi-product offered along with its life insurance sister concern, Bharti AXA Life insurance Company Limited. The company also launched an add-on cover Invoice Price Cover, which will help augment the existing Smart Drive Private Car policy. This cover will entitle the policyholder to claim the full purchase price of the vehicle in the event of theft or loss during the first two years. Thereafter, the cover would be based on normal depreciating value. Copyright 2010 Towers Watson. All rights reserved. towerswatson.com 4

5 Contact details Towers Watson's Risk Consulting and Software team covers the length and breadth of India with over 25 associates based in Mumbai and Gurgaon. R Krishnamurthy Managing Director - Products, Distribution and Markets, India Rajesh Sabhlok Senior Consultant, Risk Consulting, India Ron Kozlowski Director of General Insurance Practice, Asia s: rajagopalan.krishnamurthy@towerswatson.com rajesh.sabhlok@towerswatson.com ron.kozlowski@towerswatson.com Mumbai 511/512, Solitaire Corporate Park Andheri-Kurla Road, Andheri East Mumbai Tel: 91 (22) Fax: 91 (22) Gurgaon 404B, 4th Floor, Centrum Plaza DLF Golf Course Road, Sector-53 Gurgaon Tel: 91 (124) Fax: 91 (124) Singapore Hong Kong 135 Cecil Street, Kai Centre Suites , Central Plaza #09-01, Singapore Harbour Road, Wanchai, Hong Kong Tel: (65) Tel: (852) Fax: (65) Fax: (852) The Indian Market Non Life Insurance Update has been prepared by Towers Watson for general information purposes only and does not constitute professional advice. The information, opinions and projections contained in this Newsletter are derived from various sources and have not been independently verified by Towers Watson. If you require professional advice or require any further information please contact any of the above named individuals. ABOUT TOWERS WATSON Towers Watson is a leading global professional services company that helps organisations improve performance through effective people, risk, and financial management. With 14,000 associates around the world, we offer solutions in the areas of employee benefits, talent management, rewards, and risk and capital management. For more information, please visit Copyright 2010 Towers Watson. All rights reserved. towerswatson.com 5