insurance future summit presentation 5

8/8/2019 Insurance Future Summit Presentation 5

1/39

AUDIT TAX ADVISORY

Presentation at the Insurance Future Summitby Kunle Elebute, Partner, KPMG

FINANCIAL SERVICES

April 2008

Trends in Global Insurance andPreparing Nigeria for theGlobal Challenge

ADVISORY


2/39

2008 KPMG Professional Services, the Lagos member firm of KPMG International, a Swiss cooperative. All rights reserved. Printed in Nigeria .

The Place of Insurance

Nigeria on the Global Landscape

Lessons from Other Markets

Overall Market Outlook

Key Success Factors

Outline


3/39


The Place of Insurance1


4/39


5/39


Nigeria on the Global Landscape2


6/39


The global insurance market is witnessingsignificant growth

Global GDP grew by 3.9% in real terms during 2006 to$48,342 billion above the 10 year-average of 3%. Emerging

markets expanded by 6.9%, twice as fast as theindustrialised countries.

Worldwide insurance premiums in 2006 were $3,723billion, composed of $2,209 billion in life insurance and

$1,514 billion in non-life, representing growth rates of 5%, 7.7% and 1.5% respectively.

The life market growth rate was the highest since 2000and faster than overall economic growth in most

countries.

Emerging market growth trebled the rate from 2005

Source: Swiss Re Sigma No.4/2007


7/39 2008 KPMG Professional Services, the Lagos member firm of KPMG International, a Swiss cooperative. All rights reserved. Printed in Nigeria .

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

World Industrialisedcountries

Emergingmarkets

South and EastAsia

Latin Americaand Caribbean

Central andEastern Europe

Afr ica Middle Eas t andCentral Asia

Growth Rate Average Annual Growth Rate (1999-2005)

RealPremium GrowthRates(%)

Life Business Development ByRegion

0%

5%

10%

15%

20%

World Industrialisedcountries

Emergingmarkets

South and EastAsia

Latin Americaand Caribbean

Central andEastern Europe

A fric a Middle East andCentral Asia

RealPremium GrowthRates(%)

Growth Rate Average Annual Growth Rate (1999-2005)

Non-Life Business Development By Region

Source: Swiss Re Sigma No.4/2007

The global insurance market is witnessingsignificant growth



From Warehousing risks ToUnderstanding,restructuring & transferring

risksRisks inherited frompolicyholdersRisks pooled and borne byinsurers

Traditional reinsuranceprogramsLarge diversification + good

underwritingLarge amount of capital Securitisation

HedgingDynamic ALM

Management and intermediation of risk

- risks taken from policyholders- risks pooled and structured by

insurers- risks externalised through

reinsurance programs andfinancial markets

Efficient diversificationModerate capital with appropriatecapital management

The Old World The New World

Focus on product returns

without properly measuringrisk/ volatilityIndependent management of assets and liabilitiesAccounting rules notmarked-to-market (MTM)Few rated companiesFew institutional investors

Focus on product risk + value

Integrated ALMAccounting rules approachingMTMMany rated companiesMore institutional investors

Source: Adapted from AXA

From To

The insurance business model itself istransforming



Key trends driving global insurance marketgrowth

Strong economic growth, underpinned by improved

macroeconomic fundamentals, especially in the emergingmarkets

Favourable regulatory changes and tax incentives

Introduction of mandatory cover in certain areas (motorthird party liability health etc.)

Increased demand for life products- Increased retirement provisions in countries with

ageing population- Government shift from public to private pension

schemes


10/39


Regulatory Influence Universal Banking

Payments: Interswitch, Valucard, ATMC,NIBBS, CSCS,

Other providers: Securicor, ExcelCash Services, Rating Agencies Reformed

Security &Exchange

CommissionNational Insurance

Commission

NationalPension

CommissionCentral Bank of Nigeria/ Nigeria Deposit

Insurance Corporation

Insurance CapitalMarketsBanking

General

Reinsurance

Life

Issuinghouses

Stock brokers

Specialized FIs

Banks Universal,Community,Microfinance

DiscountHouses

Developmentbanks

FinanceCompanies

Pension FundsManagement

Pension FundAdministrators

Pension fundcustodians

InfrastructureProviders

PortfolioManagers

InvestmentAdvisersTrusteesPMIs

The Nigerian FS Industry Structure

The Structure of the Nigerian Financial Services Industry Today


11/39


0

10 ,000

20 ,000

30 ,000

40 ,000

50 ,000

60 ,000

70 ,000

80 ,000

B ra z il Ru s s ia In dia Ch in a S o uthA fr ic a

Nigeria

The Nigerian insurance sector remains globallyinsignificant and underdeveloped

Life Non-Life

Amount (US$Million)

PREMIUMS IN EMERGINGECONOMIES

Source: World Insurance in 2006, Swiss Re, Sigma No.4/2007

< 1% of GDP in 2006

< 5% of banks by totalassets

Employs about 20,0000 staff (the size of

top 3 Nigerian banks)Source: Agusto Industry Estimates;2006


12/39


Nigeria vs the BRIC(S)

Life Premium & Non-Life Volumes; GDP & Population in 2006

Life

(US $ m)

% of Total(Life +

Non-Life)

Worldshare

%

Non-Life

(US $ m)

WorldShare

GDP

(US $ bn)

Population

(m)

InsuranceDensity

(US $)

InsurancePenetration

%

Brazil 13,699 45.1 0.62 16,691 1.10 1,067 188.9 160.9 2.8

Russia 571 2.7 0.03 20,932 1.38 929 142.5 150.9 2.3

India 37,220 86.5 1.68 5,812 0.38 901 1,119.5 38.4 4.8

China 45,092 63.7 2.04 25,713 1.70 2,613 1,323.6 53.5 2.7

SouthAfrica

33,106 81.3 1.50 7,624 0.50 255 47.6 855.8 16.0

Nigeria 112 15.6 0.01 605 0.04 112 134.4 5.3 0.6Source: World Insurance in 2006, Swiss Re, Sigma No. 4/2007


13/39


Lessons from Other Markets3


14/39


Lessons from Other Markets - Brazil

Summary of major factors contributing to the rapid growth of theinsurance industry in Brazil:

Government induced economic reforms through an economicstabilisation plan

- Economic stability leading to the adoption of the nationalcurrency as a trustworthy value reference;

Improved transparency and disclosures, leading to enhanced

confidence and trust in the system by the publicOpening of the market to foreign participants in 1996, leading totransfer of capital, introduction of new products, technologies andknowledge that helped to enhance industry performance;

Introduction of a modernisation process based on IAIS* principles

adopted in the most developed markets; andIntroduction of several policy changes to stimulate the interest of the Brazilian populace to the benefits of insurance leading to amore mature market.

*IAIS International Association of Insurance Supervision


15/39


Lessons from Other Markets - Brazil

These policies have increased thecontribution of insurance to GDP from0.8% in 1994 to 2.55% in 2006.

These conditions provide a favorableenvironment for non-life insurance(benefited by the growth of economicactivities as a whole), as well as for lifeinsurance lines (a protectioninstrument which had lost itsattractiveness during the economicinstability period).

Contribution of Insurance to GDP

Life & Non-Life Ratios

Source: Ministry of Finance, SUSEP; 2006

Today, Brazil is the largest insurance market in Latin

America, with 2006 total premiums of US $ 29.6 billion.


16/39


Lessons from Other Markets - India

The insurance sector in India has come a full circle from being an open competitivemarket to nationalisation and back to a liberalised market again

No legislation to regulateinsurance business prior to1912In the year 1912, the LifeInsurance Companies Act,and the Provident Fund Actwere passedHowever, the Life InsuranceCompanies Act, put Indiancompanies at a disadvantageto foreign companiesMushrooming of insurancecompanies to about 176 by

1938Many financially unsoundconcerns were also floatedsuring this period & failedmiserablySeveral frauds during1920's/30's sullied insurancebusiness in India

Colonial Era(Pre 1938)

The first comprehensivelegislation was introducedwith the Insurance Act of 1938

The Act provided strict Statecontrol over insurancebusinessNationalisation of lifeinsurance business under theLife Insurance Corporation(LIC) in 1956Non-life) insurancebusiness/general insurance

was nationalised with effectfrom January 1, 1973 &grouped into four companies

The Malhotra Committee wasformed in 1993 to initiateinsurance sector reformsInsurance sector in India wasliberalized in March 2000

Nationalisation Era(1938 2000)

Lifting all entry restrictionsfor private players andallowing foreign players toenter the market with somelimits on direct foreign

ownershipPresently, there are about:16 life insurance companiesand 15 non-life insurancecompanies in the marketPotential for growth in themarket is immense e.g.nearly 80% of Indianpopulation is without lifeinsurance cover as at July2007Life insurance premiums &general insurance premiumsaccount for 2.5% & 0.65% of the country's GDPrespectively

Liberalisation Era(2000 till date)

Source: India 2010; A Lloyds View, June 2007


17/39



Liberalisation has led to amarked increase in Indias

premium levels and privatecompanies have gained a34.6% market share

Source: India 2010- A Lloyds View

Premium Levels(2006)

USD 6.0bn

Nominal annualpremium growth

13% (during 2006)

Premium density(2005)

India: USD 4.4 percapita

Regulator InsuranceRegulatory andDevelopmentAuthority (IRDA)

Main non-lifeindustryassociation

General InsuranceCouncil

Main life industryassociation

Life InsuranceCouncil

India InsuranceEnvironment

Premium Levels (1995-2006)

Premium levels vs. market share bysegment (2006)


18/39



The Indian insurance sector consists of public sector undertakings, PSUs,foreign and private companies. However, the private companies are steadilybuilding their customer base and currently account for 34.6% of the marketshare. Strengths of the private companies are highlighted below:

Small & Flexible

Good Staff,Systems,

Processes &Data

Greater Focuson Underwriting

Availability of smaller lessdisparate workforce whichenables quick response tochanging market conditions

Best-in-class staff with highremunerationImplementation of high qualitysystems and processesAdoption of international bestpractice standards to providehigh quality data

Emphasis placed on soundunderwriting procedures withhigh-quality back office processes

Strong Claims-Paying

Reputation

Greater efficiency ininformation captureleading to betterreputation for claimssettlement

Product FocusAggressive productdevelopment



19/39



Distribution Channels Key Growth Drivers

70-75% of all Indian non-lifepremiums are distributedthrough direct sales agents of the insurance companies.

Bancassurance is slowly pickingup.

Brokers account for a smallpercentage of all premiums

distributed.

Growing consumer class

Influx of foreign directinvestment

Public Private Partnership (PPP)infrastructure development

Insurer quality and clienteducation

Catastrophe exposure



20/39


Lessons from Other Markets - China

Comparisons in 2004 Amount $bn

Position WorldRank

Total Insurance Premium 52.2 1.61% 11

Insurance density percapita

40.2 502 72

Insurance penetration/GDP 3.26% 7.85% 42

Between 2000 and 2005

Gross Domestic Investmentrose from

33.7% of GDP to 41.2%

Gross savings rose from 37.9% of GDP to 49.5%

Corporate savings rose from 22.1% of GDP to 30.2%

Household savings rose from 12.9% of GDP to 16.8%

By 2006, there were 93insurance institutions in Chinawith nearly 2 million employeesaccounting for 40% of thefinancial sector workers.

Total premiums rose from $30.6million in 2001 to $493 billion in2005, representing $54 perhead and 2.7% of GDP, of which$46.16 billion was for life, $17.52 billion for property andhealth and accident $6.41billion.

Assets of insurers by the end of 2005 amounted to $0.21 trillion.

China is the worlds 11 th largestinsurance market by totalpremium volume, up from 16 th in 2000, with premium volumeof $62 billion.Source: China Insurance Regulatory Commission; The Geneva Association,

January 2008


21/39


22/39


Lessons from Other Markets - China China will remain an attractivemarket for foreign insurancecompanies for the followingreasons:

At 40%, China has one of the highest personalsavings rate in Asiaindicating a huge potentialfor personal-retirementsavings and protectioninsurance.

Insurance plays a majorrole in channelling fundsinto state infrastructureprojects

Chinas population is ageingfast and the government

has recognised that privatefirms will play an essentialrole in creating a viablepensions system for China.

Total insurance penetration(premiums per GDP) at3.3% is still very low,compared to an 8.1% world

Reform &Innovation

Deregulation of the Sector

Developmentof sound risk

practices

Developmentsociety &economy

The Schematic below presents an overview of thedevelopment of Chinas insurance industry

Establishment of a moderninsurance system

Pioneered listing on overseas stockmarketsImproved corporate governanceand optimised process operations

No restrictions for foreign investedinsurance companies, except forlife which must be established as a

joint venture

Sustenance of balance betweenopening up and risk controlCooperation of internationalinsurance supervision

Adoption of principles of IAISDevelopment of corporate internalcontrolsDevelopment of long-term risk

prevention framework

Provision of long-term funds foreconomic construction, supportinginvestment and promotingeconomic growth

Source: The Geneva Association, January 2008


23/39


Lessons from Other Markets VietnamAlthough China has achievedimpressive compoundgrowth of around 30% peryear, it has been outstrippedby Vietnam, which has grownat an even rate of 45%.

Vietnam has a rapidlygrowing population of around82 million people and a realGDP growth rate consistently

around 7% for the last fiveyears.

Economic growth rates areforecast to remain aroundthis level at least in themedium term.

Life insurance premiumincome grew at an annualrate of 67% in the five-yearperiod ending in 2004 beforetaking a pause in 2005. From1999, when the new foreignentrants arrived, to 2004,

total life insurance premiumgrew from less than $20


24/39


Lessons from Other Markets Vietnam

The insurance market is regulated bythe Department of Insurance under theMinistry of Finance. The departmentsupports the insurance industry with anumber of measures that include:

- Promoting the network of professional agents and otherdistribution channels introducinggreater flexibility to invest insurancefunds by allowing the establishmentof investment management fundcompanies

- Allowing grants of additional licensesto foreign companies promoting self-regulation of the industry

- Encouraging use of insurance fundsto develop the countrys economy.

Customers

Tied

Agents/AgencyChannels

Brokers

Bancassurance

(Local &Internationa

l Banks)

PostOffices

CallCentres

Distribution Channels Employed inVietnam

The regulatory body and insurance companies are focusing onimproving the quality and professionalism

of their distribution channels & agents respectively.

Source: Vietnam Association of Insurers


25/39


Lessons from Other Markets Vietnam

Deregulation of market access

Deregulation of distribution

systems

Developmentof insuranceproducts and

prices

Regulationscompared tobest practice

regulatory

regimes

100% participation of foreign owned insurersand brokers

Deregulation of the insurance industry in Vietnam

Freedom of insurers in the life and non-lifesegments to develop their distribution channelsInsurers formulate their own strategies foragencies and compile the agencys commissiontablesNo minimum capital requirement forestablishment of branches

Insurers create and determine products (non-compulsory) prices through marketcompetition

Impartial regulations for local and foreigninsurersDisclosure and consumer information

Transparent regulatory processSource: Studies on the Competitiveness and Impact of Liberalization in Financial Services:The Case of Insurance services; UNDP May 2006


26/39


Overall Market Outlook 4


27/39


28/39


29/39

Overall Outlook What will characterise the


30/39


Overall Outlook - What will characterise theindustry in the medium term?

Insurance

Penetration

GDP PerCapita

Dormancy Early Growth Sustained Growth Maturity

NigeriaToday

VISION2020

North America

Western America

India

Egypt I n s u r a n c e

G a p

SouthAfrica

.. The Nigerian insurance sector is on the cusp of metamorphosis.However, key constraints/ dependencies exist in the institutional

framework and critical market infrastructure.

The insurance breakthrough: How big is the


31/39


The insurance breakthrough: How big is theopportunity?

Key challenges to be addressed to unlock the full potential of theNigerian insurance sector include the following:

REGULATOR OPERATOR

Realignment to internationalnorms and practices- Solvency

- Corporate governance- Transparency

Risk-based approach

Enforcement

Regulatoryconvergence/collaboration(e.g. CBN)

Consumer rights protection

Skill and capacity gaps- Managing large, diversified

businesses

Risk and capital managementInvestment/assetmanagement

ROI pressure meetingmarket/stakeholder

expectationsNIA as a self-regulatingorganisation (SRO)?

Insurance education/literacy and public awareness


32/39


Key Success Factors5


33/39


Key Success Factors

Clear articulation of vision of Nigerian insurance sector,within the context of national economic agenda.

Effective engagement of all stakeholders

- Government

- NAICOM- NIA- Operators

Focused, disciplined execution with periodic progress

reporting and measurement


34/39


Appendix

Life Insurance Growth Penetration and Density b


35/39


Life Insurance Growth, Penetration and Density bRegion

Life Insurance Growth, Penetration and Density by Region

Premiums (US$ M)

RealGrowth

Share of WorldMarket (%)

Premiums in % of GDP

Premiums perCapita (US $ M)

2006 2006 2006 2006 2006

America 601,784 4.2 27.24 3.44 672.6North America 572,860 3.8 25.93 3.95 1,731.8Latin America & Caribbean 28,923 14.1 1.31 0.98 51.3

Europe 940,586 12.4 42.57 5.30 1,119.6Western Europe 927,431 12.3 41.98 5.95 1,862.9Central & Eastern Europe 13,154 19.2 0.60 0.64 40.3

Asia 602,266 3.6 27.26 5.00 154.6

Japan & Newly IndustrialisedAsian Economies 500,871 0.6 22.67 8.38 2,368.4

South & East Asia 96,627 23.6 4.37 2.06 28.6Middle East & Central Asia 4,769 5.3 0.22 0.34 15.8

Africa 35,468 21.6 1.61 3.40 38.3Oceania 29,214 6.1 1.32 3.36 896.3

World 2,209,317 7.7 100.00 4.48 330.6

Industrialised countries 2,033,051 6.6 92.02 5.53 2,026.0Emerging Markets 176,266 21.1 7.98 1.42 31.6OECD 1,976,063 6.6 89.44 5.24 1,645.0G7 1,609,706 6.8 72.86 5.66 2,225.7EU, 15 Countries 887,928 12.8 40.19 6.20 2,197.8NAFTA 579,674 4.0 26.24 3.78 1320.1ASEAN 20,299 2.5 0.92 1.96 41.4


Non-Life Insurance Growth Penetration and


36/39


Non Life Insurance Growth, Penetration andDensity by Region

Non-Life Insurance Growth, Penetration and Density by Region

Premiums (US$ M)

RealGrowth




America 727,945 1.5 48.08 4.17 813.6North America 685,440 1.0 45.27 4.72 2,072.2Latin America & Caribbean 42,505 10.0 2.81 1.44 75.4

Europe 544,295 0.5 35.95 2.97 626.0Western Europe 501,374 -0.2 33.11 3.09 966.6Central & Eastern Europe 42,920 9.2 2.83 2.09 131.4

Asia 198,553 4.4 13.11 1.63 50.4

Japan & Newly IndustrialisedAsian Economies 142,750 1.8 9.43 2.35 664.6


Africa 14,200 6.2 0.94 1.36 15.3Oceania 29,102 -1.5 1.92 3.34 891.0World 1,154,094 1.5 100.00 3.04 224.2

Industrialised countries 1,357,129 0.6 89.63 3.65 1,336.2Emerging Markets 156,965 10.8 10.37 1.27 28.2OECD 1,362,097 0.6 89.96 3.57 1,120.1G7 1,121,609 0.4 74.08 3.84 1,508.6EU, 15 Countries 469,400 -0.3 31.00 3.12 1,107.4NAFTA 693,698 1.0 45.82 4.52 1,579.8ASEAN 12,678 -0.6 0.84 1.01 21.4


Total Insurance Growth, Penetration and


37/39


Total Insurance Growth, Penetration andDensity by Region

Total Insurance Growth, Penetration and Density by Region (2006)

Premiums (US$ M)

RealGrowth




America 1,329,729 2.7 35.71 7.61 1,486.3North America 1,258,301 2.2 33.79 8.67 3,804.0Latin America & Caribbean 71,428 11.6 1.92 2.42 126.7

Europe 1,484,881 7.5 39.88 8.27 1,745.7Western Europe 1,428,806 7.3 38.37 9.04 2,829.5Central & Eastern Europe 56,075 11.4 1.51 2.73 171.6

Asia 800,819 3.8 21.51 6.63 205.0

Japan & Newly IndustrialisedAsian Economies 643,621 0.9 17.29 10.74 3,033.0


Africa 49,667 17.5 1.33 4.77 53.6Oceania 58,316 2.2 1.57 6.70 1,787.3World 3,723,412 5.0 100.00 7.52 554.8

Industrialised countries 3,390,180 4.0 91.05 9.18 3,362.2Emerging Markets 333,231 16.3 8.95 2.69 59.8OECD 3,338,160 3.9 89.65 8.81 2,765.1G7 22,731,315 4.1 73.36 9.49 3,734.3EU, 15 Countries 1,357,328 7.6 36.45 9.32 3,305.1NAFTA 1,273,373 2.4 34.20 8.29 2,899.9ASEAN 32,977 1.3 0.89 2.98 62.8



38/39

d l d


39/39

Listed Insurance Companies Post-ConsolidationS/N Name of Company Market

Capitalisation(Nbn)

1 Amicable Assurance 0.227

2 Baico Insurance 1.48

3 Law Union & Rock 202.08

4 Confidence Insurance 0.128

5 Continental Insurance 63.27

6 Cornerstone Insurance 32.13

7 Lasaco Assurance 6.99

8 Custodian & Allied 26.00

9 Equity Assurance 33.91

10 Great NigerianInsurance

5.70

11 Guinea Insurance 3.53

12 Crusader Insurance 24.94

13 WAPIC Insurance 55.26

S/N Name of Company MarketCapitalisation(Nbn)

16 Acen Insurance 0.57

17 Consolidated Hallmark 26.46

18 Standard Alliance 16.27

19 Security Assurance 145.8

20 Mutual Benefits 28.6721 N.E.M Insurance 24.34

22 Niger Insurance 40.51

23 Sovereign Trust 12.61

24 Universal Insurance 56

25 Linkage Assurance 19.0326 Unic Insurance 14.43

27 ST Assurance 30.04

28 Prestige Assurance 11.9

29 AIICO 16.57

l hSource: Nigerian Stock Exchange; 7 March, 2008

insurance future summit presentation 5

Documents