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TRANSCRIPT
The Day After Tomorrow for the Asian Life Insurance Industry and Pensions, and their
implications to Actuarial Consulting
Hideyuki Yoshida
Chairperson IACA and APACA
ACA Conference
Gatwick
February 4, 2010
2
Table of Contents
1. Japan - Hideyuki Yoshida …………………………………………… 3
2. Australia - Greg Martin ……………………………………………... 20
3. China - Grace Jiang …………………………………………………. 36
4. India - Liyaquat Khan ……………………………………………….. 48
5. Indonesia - Risza Bambang ……………………………………….. 64
6. Malaysia - Patrick Cheah …………………………………………... 83
7. Korea - Young Han ………………………………………………… 105
8. Thailand - Andrew Leung ………………………………………… 120
9. Chinese Taipei - Actuarial Institute of Chinese Taipei ….….. 131
10. Summary ……………………………………………………………. 142
The Day After Tomorrow for the Asian Life Insurance Industry and Pensions, and their
implications to Actuarial Consulting
Country: Japan
Compiled by: Hideyuki Yoshida
ACA Conference
Gatwick
February 4, 2010
4
Country: Japan
Notes for compiling information:
Currency: Japanese Yen (JPY)
New Business: Number of new policies issued, sum of amounts insured
Data and statistics obtained from industry publications.
Fiscal year “Y” – begins on April 1, year “Y” to March 31, year “Y” + 1ie: Fiscal year 2008 - beginning April 1, 2008 to March 31, 2009
Nomenclature and industry terminology specific to Japan will be defined as a footnote on applicable slides.
5
1. Classification of Insurance Products and New Business in FY 2008
Insurance product categoryNew Policies Issued (exact
figures)
Sum of Amounts Insured
(¥in millions)
(1) Individual Life ① Protection Business(Whole Life, Term Life, Death Benefit, Medical, Cancer, etc)
7,938,335 48,172,845
② Investment and Death benefit(Endowment Policies, etc) 2,559,183 13,313,542
③ Investment and Savings(Children’s Education, Nursing Care, etc) 524,720 607,252
Total - Individual Policies 1,1022,238 62,093,640
(2) Individual Annuity 1,582,599 8,043,709
(3) Group Life 2,002 4,471,510
(4) Group Pension 569 3,885
(5) Others (Workman’s Saving’s, Group Medical, Group Disability, etc) 73,307 1,418
The following table depicts a typical classification of products for statistical purposes in the Japanese life insurance industry.
• “New Policies Issued” in Group Insurance and Pensions represent the number of groups (ie: companies). For groups or companies with multiple insurers, duplication of records for such cases have been accounted for. In the case of Workman’s Saving’s Group Medical and Disability, the number of policies reflect each individual insured.
• Definitions of New Business Amount is as follows: Individual Life, Group Life - Basic amount of death benefit, Individual Annuity - Funds accumulated at the time of annuitization, Group Pension and Workman’s Saving’s plan - Amount of first premium payment, Group Medical - Daily indemnity, Group Disability - Monthly indemnity
6
Protection Business
Death Benefit Medical Cancer
New Policies Issued
(in thousands)
Sum of Amounts Insured
(¥in billions)
New Policies Issued
(in thousands)
Sum of Amounts Insured
(¥in billions)
New Policies Issued
(in thousands)
Sum of Amounts Insured
(¥in billions)
1999 4,676 92,962 1,173 710 1,299 2272000 4,415 87,657 1,252 645 1,494 221
2001 5,581 87,632 1,581 742 1,616 179
2002 5,410 85,498 2,246 886 1,245 118
2003 4,636 74,856 2,805 842 1,108 922004 4,421 67,021 2,804 910 966 722005 4,110 60,859 3,021 804 1,034 672006 3,413 53,424 2,745 738 979 542007 3,261 48,329 2,590 578 1,052 632008 3,843 47,652 2,743 471 1,352 49
(Source: Insurance Statistics)
2. History of Individual Protection Products
• The general trend for Death Benefit within the Protection Business over the past 10 years shows a decrease in the number of new policies issued as well as the sum of amounts insured.
• The sums of amounts insured for medical and cancer protection show a steady decline while the number of new polices issued steadily increased. This is due to insurers reducing the amount of the death benefit for medical and cancer protection.
7
3. History of Individual Protection Products Issued by Fiscal Year
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Medical Insurance Cancer Insurance Death Benefit
New Policies Issued (in thousands)
Fiscal Year
8
4. History of Individual Annuities
Individual Annuities
New Policies Issued (exact figures)
Sum of Amounts Insured(¥in millions)
Premiums(¥in millions)
Single Premium(¥in millions)
1999 810,859 3,555,206 2,134,212 326,9542000 868,981 3,777,908 2,172,148 439,8192001 509,720 2,266,268 2,135,229 518,7442002 749,124 3,716,579 3,022,405 1,449,6572003 1,112,624 5,657,897 4,638,277 3,101,4112004 1,367,824 7,724,415 6,292,641 4,701,8122005 1,545,214 8,816,986 7,584,641 5,931,837
2006 1,575,184 9,048,680 7,340,337 5,788,251
2007 1,510,720 8,338,108 6,769,846 5,190,8112008 1,582,599 8,043,694 6,670,319 5,070,422
(Source: Insurance Statistics)
• The number of new policies issued have doubled over the years due to the aging population of Japan with the sum of amounts insured growing at a similar rate.
• The Premium tripled over the years while the Single Premium dramatically increased due to the introduction of bank assurance.
9
5. New Business and In Force of Individual Annuities (Fixed・Variable)
New business In force business
New Policies Issued (exact
figures)
Sum of Amounts in
Insured(¥ in millions)
New Policies Issued (exact
figures)
Sum of Amounts in
Insured(¥ in millions)
FY 2007
Fixed annuities 919,491 4,677,412 13,928,808 71,739,120
Variable annuities 591,229 3,660,689 2,706,315 16,404,559
Total 1,510,720 8,338,101 16,635,123 88,143,679
FY 2008
Fixed annuities 1,064,683 5,039,922 14,311,310 72,347,178
Variable annuities 517,916 3,003,765 3,112,683 16,963,325
Total 1,582,599 8,043,687 17,423,993 89,310,503
• The percentage of Variable Annuities in FY2007 decreased from 44% to 37% in FY2008 due to the financial crisis.
10
6. New Business of Individual Annuity and Premium Income Issued by Fiscal Year
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
1999 2000 2001 2002 2003 2004 2005 2006 2007 20080
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
New Polices Issued Premium Income
New Policies Issued(in thousands)
Premium Income(¥in billions)
Fiscal Year
• The number of new policies issued showed a mild increase will the Premium Income slightly declined between FY2007 and FY2008.
11
7. History of Individual Medical Insurance
New Policies Issued(exact figures)
Sum of Amounts Insured(¥in millions)
Combined Medical and
CancerMedical Plan Cancer
Combined Medical and
CancerMedical Plan Cancer
1999 2,472,068 1,173,403 1,298,665 937,673 710,288 227,3852000 2,745,537 1,251,901 1,493,636 865,929 645,310 220,6192001 3,197,338 1,580,861 1,616,477 920,736 741,971 178,7652002 3,490,602 2,245,605 1,244,997 1,004,257 886,490 117,7672003 3,913,170 2,804,927 1,108,243 934,454 842,465 91,9892004 3,770,530 2,804,034 966,496 982,141 910,415 71,7262005 4,055,419 3,020,897 1,034,522 871,863 804,958 66,9052006 3,723,972 2,744,587 979,385 792,343 738,461 53,8822007 3,642,063 2,589,841 1,052,222 640,884 577,943 62,9412008 4,094,942 2,743,338 1,351,604 520,343 471,277 49,066
• The sums of amounts insured for medical and cancer protection show a steady decline while the number of new polices issued steadily increased. This is due to insurers reducing the amount of the death benefit for medical and cancer protection.
12
8. Stock Price and Interest Rates
0
5,000
10,000
15,000
20,000
25,000
1999 2000 2001 2002 2003 2004 2005 2006 2007 20080
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2
Tokyo Stock Price (JPY) 10-year JGB Interst Rates (%)
Tokyo Stock Price (JPY)As of March 31
Interest Rate (%)As of December 31
Fiscal Year
8,110
1.382%
12,256
1.478%
13
9. Summary of Disclosed Embedded Values in Japan
The impact of the Lehman Shock which hit the World Markets vary by company due to each company’s Asset and Liability risk profile, and the level of sophistication of the company's ERM framework.
Almost all companies included review opinions issued by actuarial consulting firms. One company had its auditor’s opinion on an agreed upon basis.
FY ended March 31 2009Company Adjusted Net Worth VIF Adjusted Net Worth VIF ANW Change VIF Change Risk Discount Rate EV Principles
A 1,086 2,557 1,184 2,399 109% 94% 8% TEVB 403 539 462 △ 22 115% N/A 8% TEVC 4,847 902 2,700 258 56% 29% Swap Rates EEVD 5,329 4,577 3,043 3,031 57% 66% Swap Rates EEVE 395 164 635 22 161% 13% Swap Rates EEVF 300 536 264 595 88% 111% 8% TEVG 560 1,904 625 1,820 112% 96% 7% TEVH 560 1,192 564 1,321 101% 111% 7% TEVI 2,485 5,680 1,954 2,054 79% 36% Swap Rates MCEVJ 350 543 358 566 102% 104% 8% TEVK 178 721 139 820 78% 114% 6.5% TEVL 4,038 1,906 1,913 1,328 47% 70% J GB rates EEVM 24,999 6,878 11,708 3,899 47% 57% 6.3% TEVN 367 49 1,093 196 298% 400% 6.3% TEVO 133 237 134 244 101% 103% 8% TEVP 9,217 14,135 4,027 13,985 44% 99% 5.8% TEV without CoC
FY ended March 31 2008(Unit: 100Million J PY)
14
10. Strategies and Actions taken by the Life Insurance Industry
The global financial crisis led to severe equity market declines and decreased consumer confidence in Japan, although Japan had less exposure to the U.S subprime security devaluation which initiated the crisis and on the whole affected less severely than the U.S. and Europe. Nevertheless the crisis environment contributed to Yamato Life’s collapse and negative policyholder reactions to some Japanese subsidiaries of foreign insurers.
Most of the Life Insurers developed mid-term (3 to 4-year) business plans expecting that the Japanese economy’s recovery will be slow and many uncertain elements will continue to exist.
Many companies plan to enhance existing risk management processes. Furthermore, some companies plan to implement Enterprise Risk Management (ERM), especially for quantifying market risk and strengthening their capital positions.
Many CEOs were cited to further strengthen existing traditional marketing channels, as well as expand partnerships with banks to include bank assurance. Additionally, they plan to increase exposure through Internet-based sales methods.
In terms of product varieties sold, due to the aging population of Japan, there is increased demand for annuity, medical, and nursing care products. This results in the increased demand for such products leading to a reduction in demand for death benefit protection products.
A few major Japanese Mutual Life Insurance companies have started to enter into Asian markets either by the means of acquisition or joint ventures.
Many companies discontinued the selling of variable annuity contracts with minimum guarantees (GMXB) due to the increased risk presented by the current economic conditions.
15
11. Regulatory Changes as a result of the Financial Crisis
Following the global financial crisis (Q3 of 2008) and collapse of Yamato Life (October 2008), Japanese regulator, Financial Service Agency (FSA), announced major changes in the Solvency Margin Regulation on August 28, 2009.
Various risk factors will be modified to reflect the most recent market data.
The Credibility level will be increased from 90% to 95%.
Diversification effects (Correlation factors) must reflect a company’s own asset portfolio.
Limitations on certain types of “soft capital” (e.g. excess reserves, DTA, sub debt) will be introduced in solvency ratio calculations, dramatically reducing ratios across the industry.
An Appointed actuary must review and certify the Solvency margin calculation.
The official implementation of the changes will be effective from FY2011. There will be a trial period of the new regulation in parallel to the existing regulation in FY2010.
The mid term goal is the implementation of the “Economic Value” based risk management, as well as “Economic Value” based Asset Liability Management (ALM).
16
12. Implications to Actuarial Consulting
Introduction of new standards will lead to increased opportunities of IFRS Phase 2 and Solvency II implementation and advisory type engagements for consulting and Audit firms.
New challenges will be presented by the ERM implementation (including Economic capital model design and development), as well as its review/audit procedures.
Market Consistent Embedded Value (MCEV) will gradually become the reporting standard used for EV disclosures in the Japanese financial industry.
Market entry advisory type engagements will increase in developing markets of Asia.
More M&A may occur as it did in the Non-Life insurance industry.
Importance of “Peer Review” advisory type engagements have been steadily increasing as a result of the tightening of regulations.
17
13. Statistics of Japanese Corporate Pension PlansPension topic contents – prepared by Ken Sugita of IAJ
Type Number of plans
Number of Participants (in millions)
Employees' Pension Fund 609 ※4.65
Defined Benefit Corporate Pension 6,986 ※5.7
Qualified Pension ※25,411 ※3.49
Defined Contribution Pension
(Corporate Type) *3,171 **3.34
Defined Contribution Pension
(Individual Type) 1 **0.11Source: Ministry of Health,Labour, and Welfare Date: January 1,2010
※ March 31,2009* October 31,2009
** September 30,2009
DB type pension
DC type pension
18
14. Regulatory Changes for Corporate Pensions
Ministry of Health, Labour, and Welfare
• Mitigating the shock of the Global Financial CrisisThe Ministry granted pension funds and sponsoring employers more time to allow funding levels to return to target levels.
• Improvement of DCBoth matching contribution and easing the requirement for a lump sum payment upon withdrawal may be realized in the coming regular session of the Diet.
Financial Service Agency (FSA)
On December 11, 2009, the Financial Services Agency (FSA) announced that the voluntary application of International Financial Reporting Standards (IFRSs) is admitted in Japan, starting from the fiscal year ending on or after March 31, 2010.
IASB
The amendment of IAS19 Employee Benefits has been scheduled. The immediate recognition of actuarial gains and losses may be realized in 2013.
19
15. Examples of Consultation Services for Corporate Pensions
Reduction of Risks
To stabilize surplus, the assumed interest rate will be reduced and allocation to equities will be diminished.
Reduction of Pension Obligations
• Shift to DC
• Reduction of interest rate for pensioners
• Shift from an Employees’ Pension Fund to a Defined Benefit Corporate Pension Plan
Transition from Qualified Pension
The Qualified Pension Plan is scheduled to be abolished on March 31, 2012. Assess the transition to other plans such as Defined Benefit Corporate Pensions or Defined Contribution Pensions.
The Day After Tomorrow for the Asian Life Insurance Industry and Pensions, and their
implications to Actuarial Consulting
Country: Australia
Compiled by: Greg Martin
ACA Conference
Gatwick
February 4, 2010
21
Country: Australia
Note for compiling information
Currency: Australian Dollar
New Business: Includes premium for new policies plus increases on existing
business (including increases due to age and policy indexation for inflation)
Data as is available from Regulatory/Industry publications.
Definition of year - calendar year
22
1. Australian Life Insurance Market Overview
Total of 32 registered life insurers• 25 Direct Insurers operating via 20 corporate groups• 5 Reinsurers• 2 “closed” entities
The life insurance market is dominated by:• 4 listed bank owned life insurance groups; plus
• 2 listed life insurance and funds management specialist groups. Significant consolidation of Insurers is currently occurring Modern Australian life insurance products are predominantly unbundled pure
insurance and investment products:• Old portfolios of with profits traditional business exist but are in run off.
Main products on sale include:• Risk insurance covering death, total and permanent disability, disability Income, critical illness.
• Group and individual retail products• Unit linked investment based products.• Relative small amounts of fixed annuities, but significant unitised annuity business.• Variable annuity products now entering the market
23
2. New Business by Classification CY 2008
Insurance Product Category New Annual PremiumCY 2008 (A$ M)*
Individual Lump Sum (Term, Disability) 950Individual Disability Income 358Group Risk (Term, Disability) 784Individual Annuity 1,974Investment (Single Premium) 28,039* Estimated
24
3. Individual Term Life and Disability History by CY
New Annual Premium (A$ M)Individual Individual
Lump Sum Disab Income2001 371 2152002 631 1572003 455 1692004 480 1982005 556 2322006 661 2402007 792 2982008* 950 358
* Estimated
25
4. Group Term Life and Disability History by CY
Group RiskNew Annual Premium
(A$ M)2001 3632002 3902003 3902004 4512005 5152006 5382007 6532008* 784
* Estimated
26
5. Term Certain & Lifetime Annuity History by CY
Individual AnnuitiesNew Single Premium
(A$ M)2001 2,5672002 2,9782003 2,7672004 3,9872005 1,3202006 1,4532007 1,6452008* 1,500
* EstimatedLegislation change in 2004 had a significant negative impact.
27
6. Unitised Investment and Annuity History by CY
Investment & Allocated AnnutiesDeposits (A$ M) Assets (A$ M)
2001 29,987 141,3562002 26,226 134,6402003 22,594 137,2222004 24,219 151,5972005 25,522 168,0012006 29,982 187,0362007 41,952 198,2332008* 28,039 168,208
* Estimated
28
7. Net Assets Above Regulatory Capital 18 Months to 30 September 2009
Industry Adjusted Net Worth($A M)
30/06/2008 3,97630/09/2008 3,66531/12/2008 3,49831/03/2009 3,37330/06/2009 4,06230/09/2009 4,980
Impact of investment market collapses early 2009 and industry raising capital late 2008 and early 2009 apparent from the above.
29
8. Stock price and interest rates
0
100
200
300
400
500
600
1999 2000 2001 2002 2003 2004 2005 2006 2007 20080
1
2
3
4
5
6
7
8
Australian Stock Price Ten Year Bond Rates (%)
(Aus) (%)
30
9. The strategies and actions taken by life insurance industry
Life insurers can be broadly split into three “strategic” groups.
Those (mostly larger) life insurers, that offer a full range insurance and investment products. These have mostly evolved into large insurance and funds management groups. These are largely evolving into specialist insurance product businesses (operating via the life insurer) and investment product businesses (with increasing business written outside the life insurer in mutual funds etc).
• Although the group typically offers combined insurance and investment products to the market.
Specialist insurance providers. Some providing wholesale insurance support to large industry based retirement savings funds. Australia has historically had low basic life insurance penetration. This is changing and new business growth in basic life insurance (term life, disability, critical illness) is significant. A current focus is on automatic underwriting and straight through (electronic) processing to reduce barriers to new business execution and costs.
Reinsurers supporting both groups above.
31
10. Any regulatory changes taking place?
A review of capital requirements is underway, but principally concerned with minor refinements, alignment of requirements between life and P&C insurance, and some incremental improvements from lessons from the GFC.
Broader financial services sector reforms, including rules around linking executive remuneration to risk management. These are principally focused on the banking sector, but are being applied more broadly, including to life insurers.
Regulation of various products (especially investment and retirement savings products) is subject to government review, particularly focusing on issues such as provision of advice, paying for commissions versus charging of “financial planning fees”, disclosure requirements and simplification.
A broad based tax review is being undertaken by government that has the potential to impact a range of investment and retirement products in Australia.
Regulation to help facilitate product rationalisation is being developed.
32
11. What do all those mean to actuarial consulting market
Change (regulations, industry consolidation etc) is raising short term opportunities.
However, the future with reducing numbers of insurers in the market (post
consolidation), the outlook is less clear:
• Fewer insurers means fewer clients;
• However, bigger clients tend to spend more on accessing external best practice etc
• The marketing skills needed to be successful with large clients are different to small
clients!
33
12. Statistics of Australian pension plans –June 30, 2008 Pension topic contents –prepared by Martin Stevenson
Type Number of entitiesNumber of member
accounts(’000)
Assets (A$ billion)
Corporate 226 661 62.1Industry 70 11,213 197.0Public Sector 40 3,002 170.6Retail 169 16,376 343.2Small 393,611 754 361.3
1,134.3
Accumulation 393,910 19,190 712.4
Defined benefit 35 669 64.3
Hybrid 171 12,147 357.5
1,134.3
Alternatively
(Source: APRA - Annual Superannuation Bulletin June 2008 (revised June 10, 2009))
34
13. Regulatory changes for pension funds
Level of contributions that qualify for tax concessions halved.
Changes to salary base on which compulsory contributions are based.
3 major reviews in progress
• Ripoll enquiry into regulation of financial planning industry and protecting members
• Cooper Review of governance, efficiency and simplicity, structure
• Henry Review of Taxation
Anti money laundering and counter terrorism controls tightened.
IASB - Australia follows lead from IASB.
35
14. Implications to Actuarial Consulting
Background - Australia is mainly a defined contribution industry with legacy defined benefit funds
Winding up small defined benefit funds
There is a belief in Australia that “bigger is better”. Opportunity to advise on fund mergers.
As funds grow larger there is an increasing need for advice on best governance practices.
As funds grow larger and evolve to being financial institutions there are opportunities for strategy and risk management consulting.
The defined contribution environment places the responsibility for adequate financial resources in retirement on the member. Consulting opportunities exist for assisting members plan for their retirement (eg through web based calculators), and opportunities exist for assisting Trustees on product development.
Increasing awareness of longevity risk provides consulting opportunities.
The Day After Tomorrow for the Asian Life Insurance Industry and Pensions, and their
implications to Actuarial Consulting
Country: China
Compiled by: Grace Jiang
ACA Conference
Gatwick
February 4, 2010
37
1. The Life Insurance Industry Before and After Financial Crisis in China
• China Life, Ping An and China Pacific Life Insurance Company (“CPLIC”) are the top three life insurers in China who represent more than 60% of the business in China.
• The increase rate for the total life insurance premium has been reduced from 48% in year 2008 to 2% in year 2009. One of the key reason is due to the impact by financial crisis.
• Compared the gross premium of the biggest 3 life insurance companies in China from year 2006 to 2009, the gross premiums for China Life and CPIC were actually decreased in year 2009.
• For Ping An, the gross premium has been increased in year 2009, however the increase rate is lower than rate in year 2008.
-50,000
100,000150,000200,000250,000300,000
China Life CPIC Ping An All othercompanies
The Gross Premium Comparison from Year 2006 to 2009 Unit: RMB Million
Year 2009 Year 2008 Year 2007 Year 2006
Note: For year 2009, only the data from January to November have been included.
Company Name Year 2009/Year 2008 Year 2008/Year 2007 Year 2007/Year 2006China Life -7% 50% 7%CPIC -7% 30% 34%Ping An 21% 28% 15%All other companies 6% 61% 46%Total 2% 48% 22%
The Gross Premium Change from Year 2006 to 2009
Sources: Statistics data on CIRC website
38
1. The Life Insurance Industry Before and After Financial Crisis in China
• The product benefits and structures have been changed after financial crisis.
• The sales volume of unit linked products and universal life products are reduced due to the bad investment performance.
• The participating products with more protection feature is more and more popular in year 2009.
• The change in the product structure is showing that people are tending to select insurance product with more risk protection after financial crisis.
• The gross premium was increased significantly from year 2006 to year 2008 in China. And the increase rate is around 11%, 22% and 48% for year 2006, 2007 and 2008 respectively.
The increase ratio of premium is obviously lower after financial crisis Unit: RMB Million
406,109494,897
733,757
425,700 447,400
11%
22%
48%
-
100,000
200,000
300,000400,000
500,000
600,000
700,000
800,000
Year 2006 Year 2007 Year 2008 2008.06.30 2009.06.300%
10%
20%
30%
40%
50%
60%
The Product Structure Change Before and After Financial Crisis
Unit: RMB MillionProduct Type Premium Ratio
Traditional Life 47,218 -5.3%Participating 292,857 38.0%Unit linked 6,755 -80.1%Universal Life 59,174 -34.2%
Sources: Statistics data on CIRC website
Sources: PwC market research
39
1. The Life Insurance Industry Before and After Financial Crisis in China
• Per disclosure in the annual report for the listed companies, the 2009 half year profit for the CPIC Life has been reduced by 57% compared with 2008 half year. And the 2009 half year profit for Ping An has been reduced by 39% compared with 2008 half year.
• The 2009 half year profit for China Life has been increased by 29% compared with 2008 half year.
• To some degree, the net profit for the insurance companies has shrunk after financial crisis in China, due to the poor performance in the capital market.
The Profit Comparison for the Biggest 3 Companies in China Unit: RMB Million
-2,0004,0006,0008,000
10,00012,00014,00016,00018,000
China Life CPIC Ping An
2009.06.30 2008.06.30 2007.06.30
Sources: Interim Report for all 3 listed companies
40
1. The Life Insurance Industry Before and After Financial Crisis in China
• The investment asset allocation has also been changed after financial crisis in China.
• We compared the asset allocation for the top 3 life insurance companies in China as of June 30, 2009 with that as of June 30, 2008 as below. All of the information is from the half year report for the listed company.
• The bond is still the main asset in the life insurance companies in China.
• The cash and deposit investment has been increased after financial crisis, compared with that before financial crisis, since it is a safer investment tool.
• For the equity, it has been reduced after financial crisis due to the bad investment environment.
• For the others, it is mainly including real estate investment and it has also been increased after financial crisis.
• More assets are transferred from risky investment to safety investment.
Asset Category 2009.06.30 2008.06.30Cash and deposit 33% 30%Bond 53% 54%Equity 11% 14%Others 4% 2%
The asset allocation change for the biggest 3 life companies in China
Sources: PwC market research
41
2. Strategies and Actions from Life Insurance Industry in China
Adjust the asset allocation structure and monitor the investment risk effectively• Increase the investment in bonds, deposit and other fixed income assets
• Decrease the investment in risky equity
• Restrict the asset investment ratio within the regulator’s requirement
Adjust the product structure to the protection type of products• Less short term investment products and more long term protection products
• Less single-pay products and more regular-pay products
• More risk protection features
Strengthen the risk management in life insurance company • Put more emphasis on the risk control and risk management
• Realize the importance of ERM in life insurance industry
Strengthen the cooperation with Bank and increase the market shares• Bank will focus on to develop other businesses due to the constrictive monetary policy
• The opportunity for the life insurance industry to increase the market share
• Life insurance industry is developing other new distribution channels (e.g. tele-marketing and internet, etc.)
42
• The regulator will put more emphasis on the development of enterprise annuity pension in China to satisfy the people’s needs after retirement.
• The EAP business are expected to be developed from current pension asset of pillar I, II and III.• The regulator is also working on some tax exemption policies for the contributions from employee.
New System
Pillar II: Currently, over 90% of the employee pension fund are managed by enterprises. However, according to current EAP regulations, current model need to be replaced by trustee model gradually.
Individual
EnterpriseSupplementary
StateSocial security system
Pillar I: China government plans to move part of the Pillar I asset administration to trustee model stage by stage. Trial cities were selected from year 2004.
Pillar III: Generally insurance based plans with contribution by employer and employee together, or individual annuity. EAP business is more competitive in terms of lower fee charge and more professional management.
EAP Fund
Old System
3. Strategies and Actions from Regulator in China - Pension system
43
Year 2002 the ratio of medical payment covered by individual health insurance to total individual medical payment
Source: OECD Health DATA 2004
• The government has heavier and heavier burden on the medical payment due to the increase of aging population in China.
• Compared with other countries, we noticed that the ratio of medical payment covered by individual health insurance to total individual medical payment is relatively lower in China.
• The life insurance industry has developed rapidly for the past few years. However the ratio of health premium is still only 6.9% of the total life insurance premium in year 2008.
• The individual health premium has increased much these years, which shows that people has also realised the deficiency of the medical welfare from government and the importance of supplementary medical protection from individual insurance.
• The regulator encourages the insurer to invest in the medical organization and also encourage the insurer to develop some health products to large rural population in China.
24%
42%
10%
55%
40%
4%
66%
3%
0%
10%
20%
30%
40%
50%
60%
70%
Australia Canada Finland France Germany Korea USA China
The Change of Health Insurance Premium
Sources: China Insurance Yearbook and PwC research
6,866 8,72911,808 8,450
11,828
19,659
25,32727,661
40,193
14,566
0
10,000
20,000
30,000
40,000
50,000
2004 2005 2006 2007 2008
Mill
ion
RM
B
Group Individual
4. Strategies and Actions from Regulator in China- Health business
44
5. Strategies and Actions from Regulator in China
On November 26, 2009, CBRC (China Bank Regulatory Commission) has issued <The guidance on the commercial bank’s investment in insurance company>.• The insurer will have more advantages in distribution channel and the strong client resources from bank
could be used by insurer.• The impetus of innovation in product development for insurer through the cooperation with bank. • The bank will have more enthusiasm in selling the insurance products.• The traditional business for bank is very simple and it will be comprehensive management after the
cooperation with insurer.• Some potential successful cases are including, Bank of Communications with China Life CMG, Banks of
China with Heng An Standard Life, China Construction Bank with Pacific-Antai Life, etc.
CIRC [2008] No.33, <The regulation on the solvency No. 14, Insurance Group>CIRC [2008] No. 89, <The implementation of “The regulation on the solvency of the insurance company”>CIRC [2009] No.53, <The regulation on the solvency No. 15, Reinsurer>• The CIRC (China Insurance Regulatory Commission) will strengthen the regulation on insurance group,
where all kinds of risks will concentrate on.• The CIRC will strengthen the solvency regulation on insurance industry, which will make people confident
in the insurer on one hand, and will make insurer to develop business in the right direction on the other hand.
• The regulator is also researching a new framework of solvency now to improve its regulation on solvency for the insurance company.
45
5. Strategies and Actions from Regulator in China
CIRC [2009] No.17, <The notice about the risk management on insurance asset allocation>
CIRC [2009] No.40, <The notice about strengthen the construction of the ability on asset management> (Incl. the standard on the capability of equity investment for insurance company and the standard on the capability of credit risk management for insurance company)
CIRC [2009] No. 42, <The notice about increase of the categories of bond investment for insurance company>
CIRC [2009] No. 43, <The notice about the debt investment on infrastructure for insurance company>
CIRC [2009] No. 45, <The notice about the regulation on the equity investment for insurance company>
• After financial crisis, the regulator put more emphasis on the risk management on the insurance asset investment.
• A serial of regulations will encourage insurer to put more assets in the bond investment.
• And the equity investment is also regulated more strictly under the current environment.
• The safety and continuity of the insurance capital will be more important.
46
5. Strategies and Actions from Regulator in China
The Ministry of Finance PRC and CIRC have establish new accounting policies in year 2009. The new accounting policy will be more realistic and will converge to IFRS (International Financial Reporting Standard)
<Corporate accounting principle No.25>: The insurance contract should be determined according to the insurance actuarial principle, however there is no specific description on the method and assumption used.
Ministry of Finance PRC <The explanation No.2 to the corporate accounting principle>: The same accounting policy and accounting evaluation should be used for the same event for all of the insurance companies listed inside and outside of China
CIRC <The implementation of the explanation No.2 to the corporate accounting principle> on January2009: All of the insurance companies should follow the accounting principles as below when preparing the inside or outside financial report,
• The significant insurance risk testing and unbundling will be introduced in the measurement of premium
• The acquisition expenses will not be deferred
• The reserve will be calculated based on the best estimate
MoF [2009] No.15 <The regulation on the accounting treatment on the insurance contract> on December 22, 2009
47
6. Opportunity to Actuarial Consulting Market in China
Needs from insurers under current situation Opportunity for actuarial consulting• Product developments with the invest risk will
be transferred to the policyholders, some are investigating the variable annuity products
• Support on product development, and the system implementation
• Development the enterprise risk management and the implementation • Some potential opportunity on ERM
• M&A • Due diligence
• Bank will invested in the insurance company
• The knowledge on insurance maybe limited for bank as a new shareholder
• Due diligence
• Knowledge transfer through all kinds of training courses
• Implementation of the new accounting principle in reserve evaluation
• Advice the implementation on the new accounting principle
• Provide some services on modeling based on the new accounting principle
The Day After Tomorrow for the Asian Life Insurance Industry and Pensions, and their
implications to Actuarial Consulting
Country: India
Compiled by: Liyaquat Khan
ACA Conference
Gatwick
February 4, 2010
49
Country: India
Note for compiling information:
Currency: Indian Rupee (INR)
New Business: New Business is defined as premium collected from the sale of new
policies
Data as is available from Regulatory/Industry publications.
The year: Year beginning with April 1.
50
1. Life Insurance - Classification of insurance products and new business in FY 2009-10 (1/2)
Insurance product category
Number of new policies issued (Units)
Amount of new business INR
million
(1) Individual insurance 20,119,836 266,057
(2) Individual annuity 8,672 3,021
(3) Group insurance 10,496 54,699
(4) Group pension 1,488 66,690
(5) Others
Source: IRDA journal (December 2009)
51
Source: IRDA journal (December 2009)
(Number: Units) (Amount: INR million)Individual and Group Business
Life Business
Number of new policies New business amount
2005-06 35,462,117 358,980
2006-07 46,177,449 754,059
2007-08 50,917,972 929,899
2008-09 50,965,644 871,165 2009-10
20,140,485 390,466 (1/2)
1. Life Insurance - Classification of insurance products and new business in FY 2009-10 (2/2)
52
2. Life Insurance - New Business issued by year
-
10
20
30
40
50
60
2005-06 2006-07 2007-08 2008-09 2009-10
Num
ber o
f New
Pol
icie
sM
illio
ns
Year
New Business for FY 2009-10 is shown only for the period April 09 – September 09 (H1)Source: IRDA journals (June 2006-2009 and December 2009)
53
3. Life Insurance - Individual Annuities
(units: number of policies, Million)
Individual Annuities (excluding Pension contracts)
Number of new policies
Amount of new business
(single premium)
2005-06 73,527 121.07 1.84
2006-07 884 13.98 12.55
2007-08 1,378 14.20 14.2
2008-09 8,194 210.77 210.14
2009-10 8,672 302.05 301.66
Source: IRDA journals (June 2006-2009 and December 2009)
54
4. Life Insurance - New Business and in force of individual annuities (Fixed・Variable)
New business In force business
Number Amount Number amount
FY 2007
Fixed annuities 919,491 4,677,412 13,928,808 71,739,120
Variable annuities 0 0 0 0
Total 919,491 4,677,412 13,928,808 71,739,120
FY 2008
Fixed annuities
Variable annuities
Total
(units: number of policies, Million)
55
5. Life Insurance - Number of new annuity business and premiums
INR million
-
500
1,000
1,500
2,000
2,500
3,000
3,500
-
1
2
3
4
5
6
7
8
9
10
2006-07 2007-08 2008-09 2009-10
New
Bus
ines
s Pr
emiu
m
Num
ber o
f New
Pol
icie
s
Thou
sand
s
YearSource: IRDA journals (June 2006-2009 and December 2009)
56
6. Life Insurance - The strategies and actions taken by life insurance industry
Risk management
• Balance sheet de-risking
• Economic capital assessment
• Asset liability management
• Regulatory and Profit Reporting
• Move towards market-consistent framework
• Increased awareness about Solvency II
Improve performance and efficiency
• Development of new distribution channels
• Cost control measures
57
7. Life Insurance - Any regulatory changes taking place?
New regulatory guidelines for unit-linked products came during late 2009, aimed at improving policyholder return by capping the overall charges an insurer can deduct from policyholder fund
The Indian regulator is encouraging insurers to assess and report their Economic Capital. However, a coherent framework for EC assessment hasn’t been finalized yet
The Indian regulator is currently in the process of finalizing guidelines for the valuation of insurance companies. The guidelines are expected to be released soon
The amendment of Insurance Act, 1938 thr’ Insurance Act Bill is yet to be passed by the Parliament. The Bill when passed will increase the FDI limit in insurance companies to 49%, from 26% prevailing currently
58
8. Pension/Retirement: an overview
No regulatory body for the Pension – Retirement industry as such, except.
The Individual and Group products that are sold by life insurers which are regulated by the insurance regulator, the IRDA. And the employer established mandatory lump sum Provident Funds which are regulated by the Employees’ Provident Fund Organisation (EPFO), an institution created by an Act of Parliament.
Un-regulator Pension/Retirement products;
• Voluntary funded Group Pension (called Superannuation), whether DC or DB, established by the employer.
• Mandated Group Gratuity (a lump sum DB benefit) if voluntarily funded.
All employer established pension/retirement plans of DB type, whether funded or not require actuarial reporting under local Accounting Standards.
No published data for unregulated pension/retirement industry
59
9. Stock price and interest rates (Source: NSE website; www.tradingeconomics.com)
60
10. What do all those mean to actuarial consulting market
Over all scenario• Since opening of the insurance industry to private sector participation in y2000 the
actuarial consulting scenario in India has undergone substantive change. Starting with Watson Wyatt initially, India now has presence of Mercer Human Resource Consulting, Milliman, Hewitt Associates, EMB, Earnst & Young, MacKinsey besides small Indian firms and individual consultant mainly DB scheme valuations under Accounting Standard.
Regulatory support• Insurance
– Appointed Actuary system for all insurers, life, non-life and health. Regulatory monitoring of actuarial out put
• Pension/Retirement– Local accounting standard – AS 15 (rev.2005)– USGAAP and IAS 19 reports – for multinationals
Insurance market size• Limited number of insurers, though large and spread allover India
– Twenty life and Twenty four non-life including 4 Health insurers– The large insurers - all Public sector are not used to engaging actuarial consultants.
61
10. What do all those mean to actuarial consulting market
Benefits Practice
Actuarial reports under accounting standards: Indian, US, UK and International
Funding advice on DB schemes
Advice to multinational start-ups on establishing and operating their benefit schemes including group insurance schemes in India
Mergers & Acquisitions - Defined Benefit Plans cost issues
Due diligence on employee benefit arrangements
Advice on benefits provider (Healthcare, life cover, group gratuity and pension)
General consulting on gratuity, pension and PF
DB: DC conversion and related issues
Benefits plan review, design, and implementation
Trust documentation
Trust Fund Administration
62
10. What do all those mean to actuarial consulting market
Life Insurance
New start ups – Business Plans, market potential studies (its normally taken up by Accounting firms, presently)
Pricing particularly in non-life and Health
Review of reserving in non-life
Peer Review of Appointed Actuary’s valuation reports
Appointed Actuary role in non-life (allowed on consulting basis)
In life – EV and market value for IPO, those life insurers completing 10 years have to go for IPO
63
10. What do all those mean to actuarial consulting market
Offshored actuarial support to Consulting in other jurisdictions
Pension liability valuations
Support to insurance consulting
Consulting such as non-life pricing for other jurisdictions which are not actuarially
developed
The Day After Tomorrow for the Asian Life Insurance Industry and Pensions, and their
implications to Actuarial Consulting
Country: Indonesia
Compiled by: Risza Bambang
ACA Conference
Gatwick
February 4, 2010
65
Country: Indonesia
Country Indonesia
Currency IDR (Indonesian Rupiah)
New Business All premium paid in a calendar year from new business issued in the particular calendar year
Source of Data 1. Association of Life Insurance of Indonesia (AAJI)
2. Annual Report of Central Bank of Indonesia
3. Annual Report of Pension Fund Regulator
Period of Report Calendar Year (January to December)
66
1. Classification of insurance products and new business in 1999 – 2009
Number of Insured (’000)
Individual Group
1999 2,431 16,1492000 2,791 9,7562001 3,270 29,3822002 4,241 30,1622003 5,578 32,0512004 4,669 22,1812005 5,130 21,6292006 5,092 11,4562007 6,602 21,7772008 7,368 22,160
2009 (up to June) 4,942 21,907
67
1. Classification of insurance products and new business in 1999 – 2009
New Business Premium (’000,000,000)
Individual Group
1999 1,943 4762000 3,115 8302001 2,702 1,3092002 4,474 1,2772003 5,221 1,5462004 7,406 2,5842005 9,917 2,4812006 10,213 2,7332007 23,952 6,6752008 24,779 6,224
2009 (up to June) 21,095 4,565
68
1. Classification of insurance products and new business in 1999 – 2009
Individual New Business Premium (’000,000,000)
Single Premium Regular Premium Unit Link (SP & RP)
1999 1,122 8202000 1,613 1,373 1292001 1,170 1,273 2582002 2,105 1,685 6842003 2,034 1,484 1,7022004 2,635 2,012 2,7572005 3,582 1,501 4,8332006 5,439 1,205 3,5682007 8,618 1,476 13,8562008 8,826 2,023 13,929
2009 (up to June) 8,856 1,598 10,640
69
1. Classification of insurance products and new business in 1999 – 2009
Group New Business Premium (’000,000,000)
Health and Life Annuity1999 4762000 578 2522001 1,099 2092002 1,176 1002003 1,479 672004 1,893 6912005 2,193 2882006 2,259 4732007 6,470 2042008 6,208 16
2009 (up to June) 4,399 165
70
2. New Business issued by year (in Billion)
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Individual Group
71
3. Individual New Business issued by year (in Billion)
0
5,000
10,000
15,000
20,000
25,000
30,000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Traditional Life Unit Link
72
4. Group New Business issued by year (in Billion)
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Health & Life Annuity
73
5. Number of Insured vs Agent
0
5
10
15
20
25
30
35
40
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 20090
20
40
60
80
100
120
140
160
Number of Insured Number of Agent
(thousand) (thousand JPY)
74
6. Number of Insured
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Individual Group
75
7. Stock price, interest rates and inflation
0
500
1,000
1,500
2,000
2,500
3,000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 20090
10
20
30
40
50
60
Jakarta Stock Index Central Bank Rate Inflation
(Jakarta Stock Index) (%)
76
8. The strategies and actions taken by life insurance industry
Product Switching Strategy - from Traditional or conventional life to Unit Link or
Investment type of product
Develop Multi Chanel Distribution: replacing the Fixed Cost type of expenses to be
Variable Cost
Bancassurance and Alternative Distribution are most favorable Sales Channel, while
Agency is transformed from Tied Agency to General Agency
Regulator implement Risk Based Capital requirement to assess the financial
solvency for Insurance Company
Annuity Product is still avoided by insurers due to uncertainty of economic condition
77
9. Any regulatory changes taking place?
Draft of Revised Insurance Law is being prepared; substance of changes are mainly
on strengthening the supervision role, tightening monitoring control and law
enforcement of violation, misconduct and negligence
In-conjunction with Society of Actuary to develop Standard Practice for in-house
Actuary especially for Statutory Report
Working together with Society of Actuary and Association of Life Insurance to study
on how to anticipate the implementation of IFRS
78
10. What do all those mean to actuarial consulting market
Actuarial Consulting has to upgrade the knowledge and competency, especially on
Insurance business
Association of Actuarial Consulting of Indonesia has to develop the Standard of
Procedures in order to match with the progress of Standard Practice that made by
Society of Actuary
Actuarial Consulting (for Life Insurance) should consider areas of specific expertise
to focus on, e.g. Life, Accident & Health, Investment Linked, Annuity etc.
79
11. Classification of Pension Fund (Employer PF vs Financial Institution PF) in 1999 - 2007
Employer Pension FundFinancial Institution
Pension Fund1999 325 252000 344 292001 314 292002 314 312003 307 292004 294 272005 286 262006 271 252007 262 26
80
12. Classification of Employer Pension Fund (Defined Benefit vs Defined Contribution) in 1999 - 2007
EPF (Defined Benefit) EPF (Defined Contribution)1999 281 442000 296 482001 271 432002 277 372003 272 352004 262 322005 250 362006 235 372007 226 36
81
13. Classification of Total Asset of Pension Fund in 1997 - 2007
Total Asset1997 16.201998 22.191999 26.932000 30.012001 34.912002 41.212003 49.642004 57.802005 64.002006 77.502007 91.20
In Trillion IDR (’000,000,000,000)
82
14. Current Update in Pension Fund Industry
Pension Fund Law is being revised; strengthening supervisory role, less procedure on pension fund set-up, broader range of products (to include lump-sum severance program), broader definition of Financial Institution Pension Fund (to include more Financial Institution)
Working together with Society of Actuary and Accounting Standard Board to anticipate the implementation of IFRS on Pension Fund
A lump-sum defined benefit severance program (including payment upon retirement) required under Labor Law has created competition with pension fund product (currently can only fund for annuity-payment pension program)
Mandatory Severance Program in Labor Law also creates tight competition between Pension Fund and Life Insurance companies which can offer funding vehicle for the program.
Introduction of Risk Management in pension fund; assessment of financial capability and solvency of pension fund using risk-based measurement.
The Day After Tomorrow for the Asian Life Insurance Industry and Pensions, and their
implications to Actuarial Consulting
Country: Malaysia
Compiled by: Patrick Cheah
ACA Conference
Gatwick
February 4, 2010
84
1. Total NB Gross Written Premium
The graph shows total new business gross written premium. Life insurance industry is measured on a new business premium and companies are ranked on that basis.
The new business for 2009 is based on January to September figures only.
5785.26553.1
7599.87127
5639.7
0
1000
2000
3000
4000
5000
6000
7000
8000
2005 2006 2007 2008 2009 *
Total NB GWP
Industry
RM’000
85
2. Total NB Gross Written Premium Growth
Total New Business grew rapidly in 2006 and 2007. There was a sharp decrease in new business in 2008 following the financial crisis.
Growth rate Year on Year for 2009 is based on a period January to September 2009 as compared to January to September 2008. There is a slight growth in new business.
13.27%15.97%
-6.22%
2.46%
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
2006 2007 2008 2009 *
% YoY NB GWP Growth
Industry
86
3. Insurance Penetration rate
The graph shows the insurance penetration rate as a ratio between number of in force policies versus the population.
The Life Insurance Industry have in their strategy to improve the penetration rate to 50% by 2015.
38.83%
39.54%
40.15%
40.70%
37.50%
38.00%
38.50%
39.00%
39.50%
40.00%
40.50%
41.00%
2005 2006 2007 2008
Insurance Penetration rate
Industry
87
4. Life Insurance Premium as % of GDP
The graph shows the life insurance premium as a % of Malaysia’s GDP.
The Life Insurance Industry have in their strategy to improve the ratio to 3.5% to be in line with regional peers by 2015.
3.06% 2.98% 2.94%
2.54%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
2005 2006 2007 2008
Life Premium as % of GDP
Industry
88
5. Comparison of Current Solvency vsRBC bases
89
Total Capital Fund Available (TCA)= Paid-up Capital + Retain Profits + Surplus arising from the funds + others
Total Capital Required (TCR or TCC)= Market Risk Charge+ Credit Risk Charge+ Operation Risk Charge+ Liability Risk Charge
Minimum Capital Required = 130% of Total Capital Required
CAR Formula
5. Comparison of Current Solvency vsRBC bases
90
6. Impact of introduction of RBC
With the implementation of the new RBC framework from January 1, 2009, new
products will be developed which ensures efficient usage of available capital.
Companies have started repricing their products to account for the new capital
requirements.
Capital management policies determines the amount of business to be written and the
type of products to be written.
Different bonus strategies put in place to allow for capital efficiency.
Investment strategies are formulated with capital management framework and risk
management framework set.
91
With implementation of RBC in Malaysia, product development has certainly became
• More interesting
• More intuitive
• More initiative
Product trends show a movement out from traditional product with guarantees to ILP
with no guarantees
Pricing new products under RBC has certainly taken off and industry will undergo a
rapid pricing cycle in the next few years
6. Impact of introduction of RBC
92
7. Regulatory changes
Introduction of Product Transparency guidelines
• Increase Product disclosures to policyholders
• Improve transparency to policyholders, e.g. full disclosure of commisisons
• Introduce concept of treating customers fairly
Change guidelines in Unit Linked products
• Change in maximum amount of premium classified as insurance premium
• Change in maximum sum assured coverage
93
8. Aging Population Of Malaysia
Key Demographical Rates – Chart # 1
Sourced:Dept of Statistic, Malaysia
94
Population By Age Group - Chart # 2
Population ('000) 2004 2005 2006 2007 2008
Below 15 Years 8,416 8,518 8,631 8,749 8,874
15-64 Years 16,090 16,487 16,863 17,226 17,609
65 Years and Above 1,074 1,123 1,146 1,195 1,248
Sourced:Dept of Statistic, Malaysia
8. Aging Population Of Malaysia
95
9. Life Expectancy By Sex
Chart # 3
Year Age At birth
2003Male 70.3
Female 75.9
2004Male 70.4
Female 76.2
2005Male 71.4
Female 76.2
2006Male 71.5
Female 76.3
2007Male 71.7
Female 76.5Source: Dept of Statistic, Malaysia
96
10. Distribution Of Employed Persons
Chart # 4
(’000) 2006 2007 2008
Total Work Force 10,727 10,999 11,123
Growth Rate 1.03 1.01
Age Group (%)15 - 24 18.1 17.4 17.625 – 34 31.2 31.5 31.535 – 44 25.9 25.7 25.645 – 54 18.3 18.7 18.755 – 64 6.5 6.7 6.6
Median Working Age 35.9 36.1 36.0
Source: Dept of Statistic, Malaysia
97
Comment on Chart # 4
The median working age shows a consistent trend.
The rate of increase in the total work force is slowing.
On the average this group of the population has 20 years of working life before
retiring at age 55.
Can they save enough over 20 years to pay for the cost of retirement which can
span over more than 20 years?
10. Distribution Of Employed Persons
98
11. In Summary
Proportion of the Malaysian population below 15 years old in the census of 2000 was 33.3% compared to 36.7% in 1991.
Proportion of population 65 years and over in census 2000 was recorded at 3.9% compared to 3.7% in 1991.
The median age for the whole population has increased from 21.9 years in 1991 to 23.6 years in 2000.
All these different age parameters clearly point towards a continuing trend of an ageing population in Malaysia.
Census 2000 also revealed that young adults tend to marry at a laterage, the proportion of never married aged 20 – 34 years continued to increase from 43.2% in 1991 to 48.1% in 2000.
99
12. % Of Population Above 60 Years Old
NO BIRTHS
COHORT GROUP OF PRESENT POPULATION
USING M83/88 MORTALITY TABLE
YearPopulation Above 60
% Million
2007 6.8 1.9
2012 9.2 2.4
2017 12.3 3.2
2022 15.8 3.9
2027 19.7 4.7
2032 24.0 5.4
2037 28.5 6.0
100
12. % Of Population Above 60 Years Old
BIRTH RATE ASSUMED
USING M83/88 MORTALITY TABLE
YearPopulation Above 60
% Million
2007 6.8 1.9
2012 8.4 2.4
2017 10.3 3.2
2022 12.2 3.9
2027 13.9 4.7
2032 15.5 5.4
2037 16.7 6.0
101
13. Aging Population Of Malaysia
Implications
Will they save enough?
Who will support them?
How to minimize risks for retirees?
• Overspending
• Outlive savings
• Inflation
• Medical
Social Implication
102
13. Aging Population Of Malaysia
Current retirement schemes
Employee Provident Fund
• Only open to employees with contribution coming from both employees (11% of salary) and employers (12% of salary)
• Not open to self-employed
• Total fund size: RM354 bn (as at June 09)
• Approximately 5.7m active members
Private pension funds
• Relatively small, most employers opting this as additional pension benefit to their staff
• Not required by law
• Employee benefit schemes mostly focus on medical protection
103
13. Aging Population Of Malaysia
Government initiative
Introduce tax exemption of insurance premium amount of RM1,000 per year if invested into saving for retirement, e.g. annuities
Enable self-employed to start saving for retirement via contributions to national provident fund (EPF)
Introduction of private pension products
• Variable annuities
• Fixed annuities
104
14. What does it mean for actuarial consultants?
More consulting work:
• Implementation of TCF
• Product repricing exercise to take into account RBC, TCF, new unit linked guidelines, product transparency
• Consulting on capital management plan
New products to be designed, e.g. retirement products
Government initiative on personal pensions will provide more consulting needs
The Day After Tomorrow for the Asian Life Insurance Industry and Pensions, and their
implications to Actuarial Consulting
Country: Republic of Korea
Compiled by: Young Han
ACA Conference
Gatwick
February 4, 2010
106
Country: Republic of Korea
Currency:
• Korean Won (KRW)
• 1USD value is approximately 1,130KRW in January 2010.
New Business:
• New business in this PPT is defined as the new contract which is sold during the reporting period.
Define Year used for statistics:
• Fiscal Year which starts April 1.
• FY2008 means April 2008 ~ March 2009.
107
1. Classification of insurance products and new business in FY 2008 (1/2)
Insurance product category
Number of new policies
issued (Thousand)
Amount of new business(KRW million )
General Account
(1) Individual insurance
① Death benefit protection(whole life, etc) 20,194 275,970,732
② Survival and Death combined(Endowment, etc)
1,510 32,037,318
③ Survival benefit(Savings plan) 1,516 44,809,341
Individual total 23,220 352,817,390
(2) Group insurance
① Protection Type 3,128 36,461,373② Savings Type 40 181,836
Group total 3,167 36,643,209Separate Account Separate account total 648 2,974,869
(Source: Korea Insurance Development Institute)
108
1. Classification of insurance products and new business in FY 2008 (2/2)
General Insurance
Protection Type Savings Type
Number of new policies
(Thousand)
New business amount
(KRW million)
Number of new policies
(Thousand)
New business amount
(KRW million)
FY2004 19,097 276,512,015 1,875 49,029,286
FY2005 25,010 292,665,836 2,375 69,318,180
FY2006 24,902 274,627,613 2,566 74,243,310
FY2007 25,165 303,466,398 2,994 82,394,822
FY2008 23,321 312,432,105 3,115 77,028,495
(Remark: General account only)(Source: Korea Insurance Development Institute)
109
2. New Business issued by year(Medical Insurance)
0
5,000
10,000
15,000
20,000
25,000
2002 2003 2004 2005 2006 2007 2008
Disease insurance Accidental insurance Other medical insurance(Source: Korea Insurance Development Institute)
110
3. Individual Annuities
Individual AnnuitiesNumber of
new policiesAmount of new
business Premiums
FY2004 787 24,693,125 4,564,744
FY2005 1,160 37,762,068 3,924,928
FY2006 1,462 45,248,281 4,998,370
FY2007 1,586 48,205,092 5,702,794
FY2008 1,532 44,250,509 4,850,716
(Remark: Traditional and ISP annuity only)(Source: Korea Insurance Development Institute)
(Units: Thousand, KRW million)
111
4. New Business and in force of individual annuities (Fixed・Variable)
New business In force business
Number Amount Number amount
FY 2007
Traditional &ISP annuities 1,586 48,205,092 5,246 150,356,114
Variable annuities 795 23,651,082 779 26,857,464
Total 2,381 71,856,174 6,025 177,213,578
FY 2008
Traditional & ISP annuities 1,532 44,250,509 5,675 167,154,060
Variable annuities 658 17,482,784 1,159 39,031,659
Total 2,190 61,733,293 6,834 206,185,719
(Units: number of policies, Million)
(Source: Korea Insurance Development Institute)
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5. Number of new annuity business and premiums
0
200
400
600
800
1000
1200
1400
1600
1800
2002 2003 2004 2005 2006 2007 20080
1,000
2,000
3,000
4,000
5,000
6,000
number of new annuity business (Traditional and ISP only) premiums
(thousand) (KRW billion)
(Source: Korea Insurance Development Institute)
113
6. Number of new policies and new business amount (Medical Insurance)
Number of new policies New Business Amount
Disease Insurance
Accidental Insurance
Long Term Care
Juvenile Insurance
Disease Insurance
Accidental Insurance
Long Term Care
Juvenile Insurance
FY2004 4,168 11,550 32 1,300 87,659,850 37,219,090 371,527 27,108,862
FY2005 5,288 16,571 54 1,172 106,609,218 60,453,818 553,665 19,022,056
FY2006 3,442 18,229 44 832 76,035,274 72,650,219 780,994 15,578,000
FY2007 2,475 19,190 40 584 59,800,253 80,973,512 1,567,261 11,630,793
FY2008 2,020 17,925 12 479 45,614,423 100,588,099 297,065 9,742,230
(Units: Thousand, KRW million)
(Source: Korea Insurance Development Institute)
114
7. Stock price and interest rates
0
200
400
600
800
1000
1200
1400
1600
1800
2000
2000 2001 2002 2003 2004 2005 2006 2007 2008 20090
1
2
3
4
5
6
7
8
9
Korea Stock Price (KOSPI) interst rates (3-year gov. bond yield) (%)
(KRW) (%)
(Source: Bank of Korea)
115
8. The strategies and actions taken by life insurance industry
The Korean economy in 2009 has continued to suffer from the global economic crisis.
In common with other global stock exchanges, the Korean main index KOSPI fell to
the year’s lowest level in October 2008, down to 1,241 on October 10 from a 52-week
high of 2,085.
Customer needs for variable products such as VUL and variable annuity decreased in
experiencing massive loss. In that situation, marketing strategies for insurance
companies are more focused on protection type products than savings type products.
116
9. Any regulatory changes taking place?
Introduction to Risk Based Capital (RBC) system
• Risk Based Capital is effective from April 1, 2009, however, company can choose either existing solvency regulation or RBC until March, 2011 which is favorable to the company.
• Risk Based Capital system is a factor based system and a refinement of existing solvency regulation with considering 5 major risks in insurance companies: insurance risk, interest risk, credit risk, market risk and operational risk.
Introduction to Cash Flow Pricing method
• Cash flow pricing method will be used in pricing insurance products since April 2010.
• Current pricing method using commutation functions use only 3 major factors: risk rate, interest rate and expense ratio in pricing insurance product. Cash flow pricing method use not only current 3 major factors but also other factors which affect cash flow such as lapse rate.
• Since cash flow pricing method enables insurance companies to address economic dynamics in insurance product pricing, new method is better for current fast-changing environment.
117
10. Pension System
Pension: Three Pillar System
• National Pension System (or Special Occupational Pension System)
• Retirement Pension Plan
• Voluntary personal pension plan
Structure of National Pension System (NPS)
• The National Pension System (NPS), a public pension system for the general public, was legislated and mandated in 1988 to be applicable to Korean residents aged 18-60.It had been gradually extended to become universal for all Koreans in April 1999.
• For special occupational groups of workers Korea has 3 independently funded and managed pension schemes: i.e., Special Occupational Pension (SOP) for (1) Public Employees; (2) Private School Teachers and Professors; and (3) Military Personnel.
118
10. Pension System (cont’d)
Retirement Pension Plan
• Retirement pension plan was enforced after December 2005 according to the Employment Retirement Benefit Security Act.
• All employee need to choose at least one of Severance Payment, DB (Defined Benefit) or Defined Contribution (DC).
• Providers are Banks (trust account), Insurers (separate account) or Asset Management Companies.
Voluntary personal pension plan
• Voluntary personal pension plan was first introduced and sold in 1994. In 2001 government introduced EET tax treatment policy for personal pension plans being marketed.
• There are two types of voluntary personal pension products: qualified with income-tax exempt products and non-qualified with income-tax exempt products.
119
11. What do all those mean to actuarial consulting market
Many potential opportunities to support clients by rapid change in business environment
• Regulation driven following (& leading) changes in reporting:
– Pricing
– Valuation
– Risk
– Capital
The Day After Tomorrow for the Asian Life Insurance Industry and Pensions, and their
implications to Actuarial Consulting
Country: Thailand
Compiled by: Andrew Leung
ACA Conference
Gatwick
February 4, 2010
121
Country: Thailand
Note for compiling information:
Currency: Thai Baht
Calendar Year basis
122
1. Classification of insurance products and new business in Y 2008
Insurance product categoryNumber of
new policies issued (number)
Direct Premiums(Million )
(1) Ordinary Life Main Policy 2,327,515 29,414
Accident Rider 939Health Rider 4,050Others Rider 1,114
(2) Industrial Life Main Policy 276,048 1,464Rider 3
(3) Group Life Main Policy 3,921 1,389Accident Rider 394Health Rider 849
Others Rider 5(4) Personal Accident 2,004,169 4,126
(Source: Office of Insurance Commission 2008 Summary Statistics)
123
2. Classification of insurance products and new business in FY 2003 (2/2)
Ordinary Industrial Group Personal Accident
Number of new policies
Direct Premiums
Number of new policies
Direct Premiums
Number of new
policies
Direct Premiums
Number of new policies
Direct Premiums
2004 1,412,260 23,417 228,249 1,269 3,252 2,516 1,340,787 2,535
2005 1,591,720 23,931 170,696 976 5,000 3,232 1,479,910 2,899
2006 1,819,142 25,357 179,888 991 5,117 3,667 1,741,990 3,482
2007 2,094,982 34,810 234,867 1,177 4.042 3,997 1,889,683 3,773
2008 2,327,515 35,518 276,048 1,467 3,921 2,638 2,004,169 4,126
(Source: Office of Insurance Commission Summary Statistics)
124
3. New Business issued by year
125
4. Stock price and interest rates
126
5. The strategies and actions taken by life insurance industry
There have been no banks or insurance companies failure related to the global financial crisis as the Thai property market was not as over valued.
The lessons of the Asian Financial Crisis in 1997 and the structural changes that have taken place since then may have minimized the impact of this financial crisis.
The main impact of GFC is on the investment income of insurance companies where they have recorded significant losses in their equity portfolios and reduction in income from fixed interests investment.
The challenges they face are:
• Pricing of new products – when and how the products should be repriced to adapt to the new world
• In force products – to the extent that products are not adequately matched, the decline in yields have created and interest rate gap between liability requirements and what assets can deliver today
127
6. Any regulatory changes taking place?
The regulator is concerned about the volatility of equity investment and its impact on
the financial position of the insurance companies.
A discussion draft has been circulated to the industry seeking feedback on a
proposal that places a limit on the amount of assets that can be invested in equity
depending on the level of capital adequacy.
At the same time, Risk Based Capital framework is being introduced into the industry
and will be effective from 2011.
128
7. What do all those mean to actuarial consulting market
Asset and Liability Management is gaining increase focus due to the global financial
crisis.
There are limited number of consulting actuaries in the local market that can
provide advice in this area.
The introduction of RBC will create more demand for actuaries in the financial
reporting area.
129
8. Pension System in Thailand
Pillar 1: Publicly Mandated, Publicly ManagedOld Age Pension System
Pillar 2: Publicly Mandated, Privately ManagedGovernment Pension Fund - civil servants pension planNational Pension Fund - defined mandatory contribution with define benefit (yet to be passed )
Pillar 2: Publicly Mandated, Privately ManagedProvident Fund (employer sponsored pension plan) - co-contributionRetirement Mutual Fund - private contribution with tax concessions
The pension system in Thailand at the moment is sub-optimal: There are issues with long term viability of existing unfunded defined benefits scheme in the public sector and new initiatives by the government a significant proportion of population don’t have adequate coverage
130
The new funds that are setup are defined contribution so there is little need foractuaries in the liabilities valuation.
The introduction of IFRS will require the valuation of other employee liabilities.
The investment allocation is usually conservative. There maybe potential in providing asset allocation advice.
Can consulting actuaries take a leadership role in the development of a better pension system?
9. What do all those mean to actuarial consulting market
ACA Conference
Gatwick
February 4, 2010
The Day After Tomorrow for the Asian Life Insurance Industry and Pensions, and their
implications to Actuarial Consulting
Country: Chinese Taipei
Compiled by: Actuarial Institute of Chinese Taipei
132
Country : Chinese Taipei
Notes for compiling information:
1. Currency: Taiwan Dollar (TWD)
2. New Business: Number of new policies issued, sum of amounts insured
3. Data and statistics obtained from industry publications.
4. Fiscal year “Y” – begins on January 1, year “Y” to December 31, year “Y”ie: Fiscal year 2008 – beginning January 1, 2008 to December 31, 2008
5. Nomenclature and industry terminology specific to Chinese Taipei will be defined as a footnote on applicable slides.
133
1. Classification of insurance products and new business in FY 2008 (1/2)
Insurance product category
Number of new policies
issued(number)
Amount of new business
(Million)
(1) Individual insurance ① Death benefit protection(whole life, etc) 1,805,125 1,500,345
② Survival and Death combined(Endowment, etc)
1,428,109 703,667
③ Survival benefit(Savings plan) 53,832 1,244
Individual total 3,287,066 2,205,256(2) Individual annuity 470,302 201,413(3) Group insurance 457,482 18,165,290(4) Group pension 0 0(5) Others 0 0
134
Protection Business Medical Insurance
Number of new policies
New business amount
Number of new policies
New business amount
2004 3,675 2,847,126 10,612 5,258,332
2005 3,919 3,518,899 12,372 6,548,896
2006 4,083 3,481,720 11,266 5,744,262
2007 4,931 4,738,385 11,325 4,996,988
2008 3,534 2,641,560 10,561 6,030,511
(units: thousand number of policies, Million)
1. Classification of insurance products and new business in FY 2008 (2/2)
Notes: protection business contains whole life, term life and so on(Source: Insurance Statistics)
135
2. New Business issued by year
0
5,000
10,000
15,000
20,000
25,000
30,000
2001 2002 2003 2004 2005 2006 2007 2008
Medical insurance protection business
136
3. Individual Annuities
Individual Annuities
Number of new policies
Amount of new business Premiums (single
premium)
2004 190,144 116,399 155,004 -
2005 137,270 95,077 121,040 -
2006 114,691 58,229 97,113 76,467
2007 217,817 97,301 169,438 133,592
2008 470,302 201,413 327,997 264,545
(units: number of policies, Million)
(Source: Insurance Statistics)
137
4. New Business and in force of individual annuities (Fixed/Variable)
New business In force business
Number Amount Number Amount
FY 2007
Fixed annuities 72,761 59,920 291,297 197,644
Variable annuities 145,056 37,381 199,185 74,413
Total 217,817 97,301 490,482 272,057
FY 2008
Fixed annuities 150,085 145,330 350,767 244,688
Variable annuities 320,217 56,083 491,858 144,263
Total 470,302 201,413 842,625 388,951
(units: number of policies, Million)
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5. Number of new annuity business and premiums
0
50
100
150
200
250
300
350
400
450
500
1999 2000 2001 2002 2003 2004 2005 2006 2007 20080
50
100
150
200
250
300
350
number of new annuity business (thousand) premiums (billion NTD)
(thousand) (billion NTD)
139
6. Number of new policies and new business amount (Medical Insurance)
Number of new policies New Business Amount
FY2004 10,611,815 5,258,332
FY2005 12,372,384 6,548,896
FY2006 11,265,761 5,744,262
FY2007 11,324,548 4,996,988
FY2008 10,561,389 6,030,511
(units: number of policies, Million)
140
7. Stock price and interest rates
(NTD) (%)
0
1
2
3
4
5
6
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Taiwan Stock Index(NTD) Interest Rate(%)
141
8. Any regulatory changes taking place?
The regulators have urged the development of micro insurance
More stringent regulation on the sales of Investment-Linked Product
The regulators lowered the prescribed valuation interest rate on August 1, 2009
Appointed Actuaries are now required to provide opinions on “Solvency” and “Investment Policy” in addition to reserve adequacy
Restrictions of Overseas’ Investment of Insurance Company was relaxed further
ACA Conference
Gatwick
February 4, 2010
The Day After Tomorrow for the Asian Life Insurance Industry and Pensions, and their implications to
Actuarial Consulting
Summary
143
Summary
General Statistical Trends in the Market Decline Japan Protection business – death benefit decreasing while medical, cancer increasing
Variable Annuity – due to financial crisis Australia Traditional (with products), fixed annuities.
Savings products (increasingly to mutual funds). China Gross premium of the largest life insurance companies despite significant growth
between 2006 – 2008 Net Profit – Total life insurance premium, unit linked products, Universal Life products, etc.
India Protection business Indonesia Significant decrease in new business Malaysia Significant decrease in new business Korea Variable products – VUL/UL Thailand Group business Taipei Protection business Increase Japan Fixed Annuity – due to the aging population Australia Term life, disability, critical illness, variable annuities. China Products with more protection features such as risk protection India Annuity business Indonesia Slight growth from early Q1 2009 to Q3 2009 Malaysia Insurance market penetration rate Korea Protection business Thailand Ordinary, Industrial, Personal Accident business Taipei Annuity, Medical new business
Strategies and Actions Japan Develop mid-term (3 to 4-year) business plans
Enhance existing risk management processes, implement Enterprise Risk Management (ERM) Strengthen marketing channels – include bank assurance, Internet-based sales methods Enter other markets through acquisition or joint ventures Discontinue variable annuity contracts with minimum guarantees (GMXB)
Australia Much consolidation – Economies of scale, distribution Business grouping (bank/insurance/funds management) Internal specialisation - insurance vs. investment products Cost reduction and increased automation: including automatic underwriting, straight through
(electronic) processing – reducing new business barriers and costs China Adjust asset allocation structure/monitor investment risk effectively
Adjust product structure to protection type of products Strengthen risk management in life insurance company Strengthen cooperation with Bank, increase market share
India Risk management – balance sheet, economic capital assessment, asset liability management Regulatory and Profit Reporting – market consistent framework, Solvency II Improve performance and efficiency – new distribution channels, cost control
Indonesia Product Switching Strategy – from Traditional/conventional life to Unit Link/Investment type of product
Multi Chanel Distribution – replace Fixed Cost type of expenses to Variable Cost Bancassurance, Alternative Distribution are most favourable Sales Channel Transform Tied Agency to General Agency Risk Based Capital requirement to assess the financial solvency for Insurance Company Annuity Product is still avoided
Korea Focus on protection type products o Less emphasis on savings type products, VUL, variable annuity
Thailand New products – when/how the price should be adjusted to adapt to the new world In force products – to the extent that products are not adequately matched, the decline in
yields have created and interest rate gap between liability requirements and what assets can deliver today
Regulatory Changes Japan Risk factors modified to reflect recent market data
Credibility level increased from 90% to 95%. Diversification effects must reflect a company’s own asset portfolio Limitations on “soft capital” introduced in solvency ratio calculations Appointed actuary must review and certify Solvency margin calculation Changes effective FY2011 – trial period FY2010 Midterm goal – “Economic Value” based risk management/ALM
Australia Prudential Reviews: o Capital requirements – aligning life and P&C o Executive remuneration – linking to risk management
Product & Distribution Reviews: provision of advice, commission vs. “financial planning fees”, disclosure requirements, product fee levels (costs).
Tax review: likely to impact investment and retirement products Regulation to help facilitate product rationalisation
China Guidance on commercial bank’s investment in insurance company CIRC No. 33, 89, 53, 17, 40, 42, 43, 45 New accounting policies to converge with IFRS
India Guidelines for unit-linked products – capped charges Economic Capital assessment, report Guidelines for valuation of insurance companies 1938 thr’ Insurance Act Bill to be passed
Indonesia Strengthen supervision, law enforcement of violations Standard Practice for in-house Actuary Implementation of IFRS
Malaysia Product Transparency guidelines Guidelines in Unit Linked products
Korea Introduction to Risk Based Capital (RBC) system Introduction to Cash Flow Pricing method
Thailand
Proposal to limit amount of assets invested in equity depending on the level of capital adequacy Risk Based Capital framework introduced – effective 2011
Taipei Development of micro insurance Stringent regulation – Investment-Linked Product Lowered prescribed valuation interest rate Appointed Actuaries required to provide opinions on “Solvency” and “Investment Policy” Restrictions relaxed for overseas’ Investment of Insurance Company
Pension – Regulatory and Trends Japan Ministry granted pension funds, more time to employers
Shift from Employees Pension Fund/Qualified Pension to Defined Benefit Corporate Pension Plan
Assumed interest rate reduced and allocation to equities will be diminished Reduction of Pension Obligations, interest rate for pensioners
144
Summary (cont’d)
Australia Level of contributions for tax concessions halved Changes to salary base on contributions Ripoll enquiry Cooper Review Henry Review of Taxation Anti money laundering and counter terrorism tightened
China Emphasize development of enterprise annuity pension EAP business developed from current pension asset of pillar I, II and III Tax exemption policies for the contributions from employee
India Mandatory lump sum Provident Funds regulated by EPFO Voluntary funded Group Pension – DC or DB Mandated Group Gratuity (lump sum DB benefit), if voluntarily funded Employer established pension/retirement plans of DB type require actuarial reporting No published data for unregulated pension/retirement
Indonesia Less procedure on pension fund set-up, broader range of products, definition of Financial Institution Pension Fund
Implement IFRS on Pension Fund A lump-sum defined benefit severance program (including payment upon retirement) required
under Labor Law has created competition with pension fund product (currently can only fund for annuity-payment pension program)
Mandatory Severance Program in Labor Law also creates tight competition between Pension Fund and Life Insurance companies which can offer funding vehicle for the program.
Risk Management, assessment of financial capability, solvency of pension fund using risk-based measurements
Malaysia Employee Provident Fund Private pension funds Tax exemption retirement investments – annuities Self-employed may contribute to EPF Introduction of private pension products
Korea Three Pillar System National Pension System (NPS) – public pension system Retirement pension plan –DB or DC Voluntary personal pension plan
Thailand Pillar 1: Publicly Mandated, Publicly Managed Old Age Pension System Pillar 2: Publicly Mandated, Privately Managed Civil servants pension plan National Pension Fund – DC with DB Provident Fund – co-contribution (employee/employer) Retirement Mutual Fund – private contribution with tax concessions Issues with long term viability of existing unfunded DB scheme in public sector Significant proportion of population not adequately covered
Impacts and Opportunities Japan IFRS Phase2 and Solvency II implement/advisory
ERM, (Economic capital model) implement/review/audit MCEV – reporting standard for EV disclosures Market entry advisory engagements developing markets M&A “Peer Review” advisory
Australia Regulations, industry consolidation, etc short term opportunities. Reducing numbers of insurers in the market (post consolidation) resulting in fewer clients Bigger clients accessing external best practice, etc Marketing skills differ between large and small clients
China Variable Annuity – product development, System implementation Enterprise risk management implementation M&A – due diligence Bank investment in insurance companies – Due diligence Knowledge transfer to banks as shareholders Reserve evaluation – Advice/implementation
India
Benefits Practice Life Insurance – review/pricing/general advisory Off-shored actuarial support
Indonesia Upgrade knowledge/competency of Insurance business Develop SOP to match Standard Practices of Society of Actuary Specific expertise to focus on Life, Accident & Health, Investment Linked, Annuity etc.
Malaysia Implementation of TCF Re-pricing exercise due to RBC, TCF, etc Consulting on capital management plan New products to be designed, e.g. retirement products Government initiatives on personal pensions will provide more consulting needs
Korea Support clients due to rapid change in business environment Regulation driven reporting advisory/implementation
Thailand Increased Asset and Liability Management Limited consulting actuaries in local market RBC advisory/implementation Set up of DC – decreased need in liabilities valuation IFRS – valuation of other employee liabilities Asset allocation advisory Leadership role in development of better pension system
Closing Remarks: The financial crisis revealed weaknesses and flaws in the regulatory and risk management systems of companies. Many financial companies failed to mitigate the risks presented by the financial crisis despite having these systems. This also holds true for the Asian financial market as indicated by statistical data throughout the period. As a result, Enterprise Risk Management is now the main focus for implementation and operating efforts of insurance companies. Regulators have also tightened measures in minimum capital requirements following developments such as Solvency II in Europe. Fears of a global recession saw the need for International Cooperation in order to revive the world’s financial systems. This called for the involvement of the G20, rather than the original G8 countries. In addition to the original G8, the new G20 (19 countries and the EU) now includes additional countries, with the most number of countries coming from Asia. These additions are Australia, China, India, Indonesia and South Korea. The effect of the financial crisis on the Asian insurance industry was relatively mild with indicators revealing signs of recovery as early as 2009. With proper risk management and by bringing relevant actuarial expertise, we can ensure a thriving market for actuary consulting in the continued development of the overall Asian insurance industry.
145
Summary (cont’d)
0
2
4
6
8
10
12
14
16
18
20
0
100
200
300
400
500
600
700
2000 2001 2002 2003 2004 2005 2006 2007 2008
Consolidated Stock Index and Interest Rates (%)
Tokyo
Australia
India
Indonesia
Korea
Japan (%)
Australian (%)
India (%)
Indonesia (%)
Korean (%)
Stock IndexInterest Rates (%)
146
US Dollar Conversion
USD Conversion Table – As of January 28, 2010PER $1 USD:Japan – JPY (Yen) 90.2720Australia – AUD (Dollar) 1.11888China – CNY (Yuan Renminbi) 6.82800India – INR (Rupee) 46.5300Indonesia – IDR (Rupiah) 9390.00Malaysia - MYR (Ringgit) 3.43050South Korea – KRW (Won) 1165.54Thailand – THB (Baht) 33.0800Chinese Taipei – TWD (Dollar) 32.0464
147
Contact Information
INTERNATIONAL ASSOCIATION OF CONSULTING ACTUARIESASSOCIATION INTERNATIONALE DES ACTUAIRES-CONSEILS
Hideyuki E. Yoshida, FIAJ, FSA, MAAA, FCAIACA, APACA Chairman
PricewaterhouseCoopers AarataDirectorAssurance – Financial Services
Sumitomo Fudosan Shiodome Hamarikyu Bldg.8-21-1 Ginza, Chuo-kuTokyo (104-0061)JapanMobile: +81-90-6514-4650Facsimile: +81-3-3546-8451Email: [email protected]