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TRANSCRIPT
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Report on
Public Issues by General
Insurance Companies
SEBI Committee on Disclosures and
Accounting Standards (SCODA)
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Table of contents
Section No. Section Page
No.
1 Background 3
2 Recommendations of Sub-group 3
3 Other Recommendations of Sub-group 8
List of Annexure
Annexure No. Details of Annexure Page
No.
Annexure I Industry Specific Risk Factors for Insurance Sector 9
Annexure II Overview of Insurance Industry 19
Annexure III Comparison Table on Disclosures Made in Offer
Documents of General Insurance Companies in Other
Jurisdictions
21
Annexure IV Glossary of Terms Used in General Insurance 30
Annexure IV Format for Report on Investor Grievance 36
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Public Issues by General Insurance Companies
1. Background:
The report of the sub-group on “Public Issues by Insurance Companies” submitted to SCODA was discussed in the meeting of SCODA held on March 15, 2010. Following were the members of the Sub-group:-
a) Dr. Subramanian, Head-IBD, Enam Securities Ltd. b) Ms. Dipti Neelakantan, MD & Group COO, JM Financial Consultants c) Shri Prithvi Haldea, CMD, Prime Database d) Shri R K Sharma, Deputy Director, IRDA e) Shri Shravan Jalan, Director, Ernst & Young f) Shri Sunil Kadam, General Manager, SEBI
SCODA has accepted the recommendations of the sub-group for life insurance companies however, the sub-group was advised to identify additional disclosure requirement for General Insurance Companies. The report of the sub-group with the suggestions given by SCODA was placed before the SEBI Board in its meeting held on October 25, 2010 and the same was approved. Copy of the report approved by the SEBI Board is enclosed as Annexure I. The recommendation of the sub-group on the additional disclosure of General Insurance Companies was placed before the SCODA in its meeting held on January 20, 2012. The recommendation of the sub-group was accepted by the SCODA with the following changes:- a. A separate disclosure for re-insurance risk should also be incorporated in
the report
b. Instead of specifying the additional disclosure applicable to the general insurance companies, the sub-group may submit its supplementary report giving the all the disclosures requirement for the general insurance companies.
2. Recommendations of Sub-group
2.1. Disclosures by General Insurance Companies:
2.1.1. Industry- specific Risk Factors for Insurance Companies:
The insurance industry is different from other industries and has risks which are unique to it. In order to get an understanding of risks specific to the insurance industry, offer documents of certain insurance companies which came out with issue of capital in other jurisdictions were studied. Based on the risk factors disclosed in such offer documents, following are the minimum broad industry specific risk areas that needs to be disclosed:
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i. Claims arising out of catastrophic losses (natural and man-made), which could materially and adversely impact the profitability or cash flow of the insurance companies.
ii. Differences in future actual claims resulting from the assumptions used in pricing and establishing reserves for insurance and annuity products which may materially affect earnings.
iii. Risk with reference to concentration by region/type of policies of the insurance company.
iv. The assumptions based on which the Economic Capital is calculated and disclosed may vary significantly from time to time / among industry players.
v. Inability to attract and retain productive agents in a growing competitive business environment.
vi. Inability to obtain reinsurance on a timely basis or at all, which results in bearing increased risks or reduce the level of our underwriting commitments.
vii. Default by one or more of our reinsurers which could materially affect the financial condition and results of operations.
viii. Regulatory restrictions on investments by insurance companies
ix. Exposure to recovery related risks including for foreclosure of the mortgages
x. Risk of regulated tariff
xi. Increase in the claim liability of motor third party due to the judgments of courts
xii. Inability to accurately predict benefits, claims and other costs or to manage such costs through loss limitation methods, which could have a material adverse effect on the operations and financial condition
The sub-group recommends that the aforementioned list may act as guidance for companies while disclosing the risk factors in the offer documents. The sub-group also compiled detailed risk factors for insurance companies which are placed at Annexure I.
The sub-group recommends that:
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a. The detailed risk factors as identified by sub-group may be placed on the website of IRDA which may act as guidance to insurance companies coming out with IPO.
b. SEBI may prescribe the disclosure of aforementioned list of risk factors in the offer documents of insurance companies through circular or standard observations.
2.1.2. Disclosure on Overview of the Insurance Industry:
The SEBI (ICDR) Regulation does not prescribe the format or the contents of industry overview which need to be disclosed in the offer documents for any industry. However, considering the fact that no insurance company in India has come out with an issue so far, it is felt necessary that the investors get a broad overview of the insurance industry. In view of this, broad parameters under which the disclosure on insurance industry overview may be made have been listed and placed in Annexure II. The sub-group recommends that this listmay be placed in the website of IRDA, which may act as guidance for insurance companies coming out with issues.
2.1.3. Disclosure of Financial Information:
It is observed that the components of financial statements of insurance companies are significantly different from other companies. An insurance company prepares two types of income accounts i.e. policy holder’s account (Revenue account) and shareholder’s account (profit and loss account). IRDA has prescribed the formats in which the financials of the insurance companies need to be submitted to them on a periodic basis. On the other hand, provisions regarding disclosure of financial information in SEBI (ICDR) Regulations are general and are applicable to all companies. The subgroup noted that banking companies follow format of financial statements prescribed under Banking Regulation Act, 1949 and similarly insurance companies may follow formats specified by IRDA. Sub-group recommended that the financial disclosure for insurance companies may be as per the format specified by IRDA.
2.1.4. Specific Disclosures which are followed in other Jurisdictions:
The sub-group carried out an analysis of the specific disclosures which are followed in other jurisdictions. A detailed comparative chart along with the comments of the IRDA on each disclosure item in case of General insurance companies is attached as Annexure III. It is observed that the extant disclosure norms prescribed by IRDA are by and large at par with the international practice in vogue in various jurisdictions. The sub-group recommends that following disclosures shall be included in the offer documents of General insurance companies
i. Gross premium- along with Geographic segmentation
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ii. Cross selling
iii. Distribution network
iv. Claims outstanding with age-wise and type-wise break-up
a. Outstanding upto 180 days
b. Outstanding more than 180 days and for each year upto 5 years
c. 5 years and above
v. Reinsurance
a. Number of re- insurers with break-up- domestic and foreign
b. Type of arrangement with Reinsurers
i. Treaty Reinsurance- 1. Proportional treaties
a. Obligatory and b. Others
2. Non-proportional Treaties a. Excess of Loss b. Stop Loss c. Any other
ii. Facultative Reinsurance.- iii. Obligatory and iv. Others
c. Reinsurance balances outstanding- age-wise
vi. Maximum probable Loss Ratio
vii. Incurred but not reported IBNR) /Incurred but not enough reported (IBNER)
The sub-group recommends that SEBI/ IRDA may mandate the disclosure of aforementioned list of disclosure items in the offer documents of insurance companies through circular or standard observations
The sub-group recommends that report of an independent actuary on the Economic Capital of the insurance company should be made a part of the offer document. The contents and format of the reports and criteria for actuaries who are authorized to prepare such report may be prescribed by IRDA.
The sub-group recommends that SEBI may mandate the disclosure of aforementioned list of disclosure items in the offer documents of insurance companies through circular or standard observations.
2.1.5. Glossary of terms used in the Insurance Industry:
In order to familiarize the investors with terms used in insurance industry and to standardize the definition and understanding of such terms, the sub-group felt that a “Glossary of the terms used in Insurance industry”
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may be prepared. IRDA provided a “Glossary of the terms used in Insurance industry” which is placed in Annexure IV. This glossary of terms may act as guidance for insurance companies coming out with issues. The sub group recommends that the glossary may be placed on the website of IRDA.
2.1.6. Continuous Disclosure Requirements for Insurance Companies:
In the report submitted to SCODA, sub-group had suggested a separate format for continuous financial disclosure to be made by insurance companies pursuant to listing on stock exchanges. The sub-group recommended that the said formats may be incorporated in clause 41 of the listing agreement, which shall be used by insurance companies for publishing and filing financial information with stock exchanges on a periodic basis.
After deliberating on the same SCODA suggested the sub-group to re-work on the formats specified in Clause 41 of the Listing Agreement and retain only critical portions, as the same needs to be published in the newspapers. Further, SCODA suggested that the sub-group should classify those disclosures which need to be filed with the exchanges and those which need to be published.
Sub-group deliberated the matter and felt that finalization of continuous disclosures requirements would be more appropriate once the insurance companies file the offer document with SEBI as it would help to identify the critical items for disclosure purpose based on the materiality of the information provided in the offer document. In view of above the subgroup suggested that the formats for continuous disclosures to be made by the insurance companies may be prescribed once the insurance companies file their offer documents with SEBI for public issues.
Other issues raised by IRDA:
The following issues raised by IRDA have been dealt with in the Report of the SCODA in respect of Life Insurance Companies:-
Advertisements regarding public issues
Objects of issue
Issuance of partly-paid shares
Definition of Promoters
Key Management Personnel
Disclosure with regard to uniform financial denomination
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3. Other recommendations of Subgroup
Grievance Redressal Mechanism
The insurance business is entirely customer oriented therefore, the success of the business is heavily depends on the customer satisfaction. In view of this the sub-group felt that every General insurer shall make a brief description of the Grievance Redressal Mechanism under the Business Description of the Insurer in the offer document. The brief description of the Grievance Redressal Mechanism may cover the
a) Turn Around Time for the complaints
b) Steps taken to minimize the complaints
c) Trend analysis of the complaints
d) Numbers of cases in which ombudsmen awarded decision against the insurers and its year wise break-up.
e) Segregation of the complaints (to the extent possible) based on the mode of receipt viz written complaints, over telephone, referred by the Authority or any other mode.
In addition, disclosure of summary of the complaints received during the last three years and its redressal may also be mandated in the offer document. The format for such disclosure may be as per Annexure V
*****
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ANNEXURE I: INDUSTRY SPECIFIC RISK FACTORS FOR INSURANCE SECTOR (GENERAL INSURANCE)
General
No insurance company is yet listed in the Indian capital market. Insurance sector has a unique operation and it presents various types of unique risks. Investors should read the section on “Insurance Industry” to acquaint themselves with the key features of this sector. In addition, investors should consider the risks associated with the industry in which the Company operates as well as those relating specifically to it.
Interest Rate Risk
Changes in interest rates may materially and adversely affect our profitability. The profitability of some of the products and investment returns of insurance companies are highly sensitive to interest rate fluctuations, and changes in interest rates could adversely affect our investment returns and results of operations. A rise in interest rates would adversely affect our shareholders’ equity in the immediate fiscal year due to a decrease in the fair value of our fixed income investments. Conversely, a decline in interest rates could result in reduced investment returns on our newly added assets and have an adverse impact on our profitability. During periods of declining interest rates, our average investment yield will decline as our maturing investments, as well as bonds that are redeemed or prepaid to take advantage of the lower interest rate environment, are replaced with new investments carrying lower yields, which would adversely affect our profitability
Reason : it is not a risk for general insurers since the tenure of general insurance policies will generally be one year.
Liquidity Risk
Differences in future actual claims results from the assumptions used in pricing and establishing reserves for our insurance and annuity products may materially and adversely affect our earnings. Our earnings depend significantly upon the extent to which our actual claims results are consistent with the assumptions used in setting the prices for our products and establishing the liabilities in our financial statements for our obligations for future policy benefits and claims. Our assumptions include those for investment returns, expenses, as well as macro-economic factors such as inflation. To the extent that trends in actual claims results are less favorable than our underlying assumptions used in establishing these liabilities, and these trends are expected to continue in the future, we could be required to increase our liabilities. Any such increase could have a material adverse effect on our profitability and, if significant, our financial condition. Any material impairment in our solvency level could change our customers' or our business associates' perception of our financial health, which in turn could adversely affect our sales, earnings and operations.
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Investments Risk
We may incur significant losses on our investments, which may cause our investment income to decrease, and could have a material adverse effect on our financial condition and results of operations. We primarily invest in fixed income products such as term deposits, government bonds, subordinated bonds issued by financial institutions, corporate bonds and equity. Our investment returns, and thus our profitability, may be adversely affected from time to time by conditions affecting our specific investments and, more generally, by market fluctuations as well as general economic, market and political conditions. In particular, our ability to make a profit on our insurance products depends in part on the returns on investments supporting our obligations under these products, and the value of specific investments may fluctuate substantially. Future movements in market interest rates, unfavorable conditions in the Indian capital market or other factors may cause our investment income to decrease significantly, and could have a material adverse effect on our financial condition and results of operations.
Catastrophic Losses Risk
Catastrophic losses could materially reduce our profitability or cash flow. Our insurance operations expose us to claims arising out of catastrophes. Earthquakes, typhoons, floods, wind, fires, explosions, industrial accidents, epidemics, terrorist attacks, and other events may cause catastrophes, and the occurrence and severity of catastrophes are inherently unpredictable. It is possible that both the frequency and severity of natural disasters may increase in the future. We establish reserves only after an assessment of potential losses relating to catastrophes that have taken place. However, we cannot assure you that such reserves will be sufficient to pay for all related claims. Although we carry some reinsurance to reduce our catastrophe loss exposures, due to limitations in the underwriting capacity and terms and conditions of the reinsurance market as well as difficulties in assessing our exposures to catastrophes, this reinsurance may not be sufficient to protect us adequately against losses. As a result, one or more catastrophic events could materially reduce our profits and cash flows and harm our financial condition.
Reinsurance Risk
If we are not able to obtain reinsurance on a timely basis or at all, we may be required to bear increased risks or reduce the level of our underwriting commitments. Our ability to obtain reinsurance on a timely basis and at a reasonable cost is subject to a number of factors, including prevailing market conditions that are beyond our control. The availability and cost of reinsurance may affect the volume of our business as well as our profitability. In particular, we may be unable to maintain our current reinsurance coverage or to obtain other reinsurance coverage in adequate amounts and at favorable rates. If we are unable to renew our expiring coverage or to obtain new reinsurance coverage, either our net risk exposure would increase or, if we are unwilling to bear an increase in net risk exposures, our overall underwriting capacity and the amount of risk we are able to underwrite would decrease. To the extent we are not able to obtain reinsurance on a timely basis and at a reasonable cost, or at all, our
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business, financial condition and results of operations would be materially and adversely affected.
A default by one or more of our reinsurers could materially and adversely affect our financial condition and results of operations. Like other major insurance companies in the world, we transfer some of the risk we assume under the insurance policies we underwrite to reinsurance companies in exchange for a portion of the premiums we receive in connection with the underwriting of these policies. Although reinsurance makes the reinsurer liable to us for the risk transferred, it does not discharge our liability to our policyholders. As a result, we are exposed to credit risk with respect to reinsurers in all lines of our insurance business. In particular, a default by one or more of our reinsurers under our existing reinsurance arrangements would increase our financial losses arising out of a risk we have insured, which would reduce our profitability and may adversely affect our liquidity position. In the event of a catastrophic loss that affects a significant number of Indian insurers, the reinsurers may not b able to pay us on a timely basis, or at all.
Economic Capital
The Economic Capital information we present in this prospectus is based on several assumptions and may vary significantly as those assumptions are changed. In order to provide investors with an additional tool to understand our economic value and business results, we have disclosed information regarding our embedded value, as discussed in the section entitled, "Embedded Value". These measures are based on a discounted cash flow valuation determined using commonly applied actuarial methodologies. Standards with respect to the calculation of embedded value are still evolving, however, and there is no single adopted standard for the form, determination or presentation of the embedded value of an insurance company. Moreover, because of the technical complexity involved in embedded value calculations and the fact that embedded value estimates vary materially as key assumptions are changed, you should read the discussion under the section entitled "Embedded Value". You should use special care when interpreting embedded value results and should not place undue reliance on them.
Regulatory Risks
Regulations may restrict our ability to operate. The insurance industry is subject to extensive regulation by IRDA. IRDA has broad administrative powers to regulate many aspects of the insurance business, which include premium rates, marketing practices, advertising, policy forms and capital adequacy. IRDA is concerned primarily with the protection of policyholders rather than shareholders. Insurance laws and regulations impose restrictions on the amount and type of investments, prescribe solvency standards that must be met and maintained and require the maintenance of reserves. Premium rate regulation is common across all of our lines of business and may make it difficult for us to increase premiums to adequately reflect the cost of providing insurance coverage to our policyholders. In our underwriting, we rely heavily upon information gathered from third parties such as credit report agencies and other data aggregators.
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The use of this information is also highly regulated and any changes to the current regulatory structure could materially affect how we underwrite and price premiums.
Our business is highly regulated and we may be materially and adversely affected by future regulatory changes. Our businesses are regulated primarily by IRDA and we are subject to laws regulating all aspects of our insurance business. Compliance with applicable laws, rules and regulations may restrict our business activities. Furthermore, these laws, rules and regulations may change from time to time and we cannot assure you that future legislative or regulatory changes, including deregulation, would not have a material adverse effect on our business, financial condition and results of operations. We cannot predict at this time the effect of potential regulatory changes on our business and profitability. Moreover, failure to comply with any of the numerous laws, rules and regulations to which we are subject could result in fines, suspension or, in extreme cases, business license revocation, which could materially and adversely affect us. In particular, future laws, rules and regulations, or the interpretation of existing or future laws, rules and regulations, may have a material adverse affect on our business, financial condition and results of operations.
The Indian insurance regulatory regime is undergoing significant change as it moves toward a more transparent regulatory process. Some of these changes may result in additional costs or restrictions on our activities. In particular, some of the changes may require us to take additional steps to comply with new rules and regulations on a timely basis. We cannot assure you that we will be able to achieve full compliance with any such new rules and regulations within any prescribed timeframe, and any such compliance may result in our incurring increased compliance and other costs. Moreover, because the terms of our products are subject to regulations, changes in regulations may affect our profitability on the policies and contracts we issue.
Regulatory investigations and the resulting sanctions or penalties may adversely affect our reputation, business, results of operations and financial condition. We may also be subject to regulatory actions from time to time. A substantial legal liability or a significant regulatory action could have an adverse effect on us or cause us reputational harm, which in turn could harm our business prospects. We are subject to periodic examinations by IRDA, which may impose sanctions, fines and other penalties on us. If IRDA, in connection with their future audits or examinations, requires us to take corrective measures or impose administrative penalties on us or if as a result we become the target of negative publicity, our corporate image and reputation and the credibility of our management may be materially and adversely affected.
Implementation of International Financial Reporting System (IFRS) Insurance Sector will converge to IFRS once the revised standard on Insurance Contracts will be in place. New accounting pronouncements may significantly affect our financial statements for the current and future years, and may materially and adversely affect our reported net profits and shareholders’ equity, among other things.
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Solvency Risks
Our ability to comply with minimum solvency requirements stipulated by IRDA is affected by a number of factors, and our compliance may force us to raise additional capital, which could be dilutive to you, or could reduce our growth. We are required by IRDA regulations to maintain our solvency at a level in excess of minimum solvency levels. Our minimum solvency is affected primarily by the policy reserves we are required to maintain which, in turn, are affected by the volume of insurance policies we sell and by regulations on the determination of statutory reserves. Our solvency is also affected by a number of other factors, including the profit margin of our products, returns on our investments, underwriting and acquisition costs, and policyholder and shareholder dividends. If we continue to grow rapidly in the future, or if the required solvency level is increased in the future, we may need to raise additional capital to meet our solvency requirement, which would be dilutive to you. If we are not able to raise additional capital, we may be forced to reduce the growth of our business.
Legal Risk
We may suffer losses from unfavorable outcomes from litigation and other legal proceedings. Legal actions are inherent in our businesses and operations. We are subject to litigation and other legal proceedings as part of the claims process, the outcomes of which are uncertain. We maintain reserves for these legal proceedings as part of our reserves. We also maintain separate reserves for legal proceedings that are not related to the claims process. In the event of an unfavorable outcome in one or more legal matters, our ultimate liability may be in excess of amounts we have currently reserved for and such additional amounts may be material to our results of operations and financial condition.
As industry practices and legal, judicial, social and other conditions change, unexpected and unintended issues related to claims and coverage may emerge. These issues may adversely affect our financial condition and results of operations by either extending coverage beyond our underwriting intent or by increasing the number and size of claims. In some instances, these changes may not become apparent until some time after we have issued insurance contracts that are affected by the changes.
Competition Risk
Competition in the Indian insurance industry is increasing and our business and prospects will be harmed if we are not able to compete effectively as well as have a material adverse effect on our financial condition and results of operations by, among other things: reducing our market share in our principal lines of business; decreasing our margins and spreads; reducing the growth of our customer base; increasing our policy acquisition costs; increasing our operating expenses, such as sales and marketing expenses; and increased turnover of management and sales personnel. Some of our competitors may have advantages over us in one or more areas, such as financial strength, management capabilities, resources, operating experience, market share, distribution channels and capabilities in pricing, underwriting and claims settlement. In addition, we face potential competition from commercial
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banks, some of which invest in, or form alliances with, existing insurance companies to offer insurance products and services that compete against those offered by us. These commercial banks may also establish subsidiaries of their own to engage in insurance business directly. Such potential competitors may further increase the competitive pressures we experience.
Competition from foreign-invested insurance companies is likely to increase in the future, as restrictions on their operations in India are relaxed. Moreover, foreign-invested insurance companies may have access to greater financial, technological or other resources than we do.
We are likely to face increasing competition from companies offering products that compete with our own. In addition to competition from insurance companies, we face competition from other companies that may offer products that compete with our own, including real estate companies, mutual fund companies and other financial services providers.
Market Growth Risk
The rate of growth of the Indian insurance market may not be as high or as sustainable as we anticipate.
The rate of growth of the Indian insurance market may not be as high or as sustainable as we anticipate. This may be the case even though we expect the insurance market in India to expand and the penetration rate to rise with the growth of the Indian economy and household wealth, continued social welfare reform, demographic changes and the opening of the Indian insurance market to foreign participants. The impact on the Indian insurance industry of certain trends and events, such as the pace of economic growth in India and the ongoing reform of the social welfare system is unpredictable and consequently, the growth and development of the Indian insurance market is subject to a number of uncertainties that are beyond our control.
An economic slowdown in the country, such as the one experienced following the recent global financial crisis, may reduce the demand for our products and services and have a material adverse effect on our results of operations, financial condition and profitability. In an economic downturn characterized by higher unemployment, lower family income, lower corporate earnings, lower business investment and lower consumer spending, the demand for our insurance products and services could be adversely affected. In addition, we may experience an elevated incidence of claims and lapses or surrenders of policies. Our policyholders may also choose to defer paying insurance premiums or stop paying insurance premiums altogether.If the Indian economy continues to experience a slower growth or a significant downturn, our results of operations and financial condition would be materially and adversely affected.
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Agents’ Risk
All of our insurance agents are required to obtain a qualification certificate from IRDA; any changes in the regulatory policies with regard to the agents may materially and adversely affect our business. Moreover, our growth is dependent on our ability to attract and retain productive agents. A substantial portion of our business is conducted through agents. Competition for agents from insurance companies and other business institutions may force us to increase the compensation of our agents and sales representatives, which would increase operating costs and reduce our profitability.
If we are unable to develop other distribution channels for our products, our growth may be materially and adversely affected. Banks and post offices are rapidly emerging as some of the fastest growing distribution channels in India. We do not have exclusive arrangements with any of the banks and post offices through which we sell insurance and thus our sales may be materially and adversely affected if one or more banks or post offices choose to favor our competitors' products over our own.
Agent misconduct is difficult to detect and deter and could harm our reputation or lead to regulatory sanctions or litigation costs. Agent misconduct could result in violations of law by us, regulatory sanctions, litigation or serious reputational or financial harm. Misconduct could include engaging in misrepresentation or fraudulent activities when marketing or selling insurance policies or annuity contracts to customers; hiding unauthorized or unsuccessful activities, resulting in unknown and unmanaged risks or losses; or otherwise not complying with laws or our control policies or procedures. We cannot always deter agent misconduct, and the precautions we take to prevent and detect these activities may not be effective in all cases. We cannot assure you that agent misconduct will not lead to a material adverse effect on our business, results of operations or financial condition.
Other Risks
– We depend on select actuarial personnel and could be materially and adversely affected by the loss of their services.
– Prospective investors should acquaint themselves with the Financial Statements, drawn specifically for the insurance companies.
– Contingent liabilities could adversely affect the financial condition and results of operations of the insurance company.
– Investment in the relatives/associates of the Promoters/ Directors of the Insurance Company can be detrimental to the interests of our company.
– Risk with reference to concentration by region/type of policies of the Insurance Company
– Insurance Companies are subject to restrictions on payments of dividends
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– We will incur increased costs as a result of being a listed company.
The insurance industry is cyclical, which may impact our results. The insurance industry is cyclical. Although no two cycles are the same, insurance industry cycles have typically lasted for periods ranging from two to six years. The segments of the insurance markets in which we operate tend not to be correlated to each other, with each segment having its own cyclicality. Periods of intense price competition due to excessive underwriting capacity, periods when shortages of underwriting capacity permit more favorable rate levels, consequent fluctuations in underwriting results and the occurrence of other losses characterize the conditions in these markets. Historically, insurers have experienced significant fluctuations in operating results due to volatile and sometimes unpredictable developments, many of which are beyond the direct control of the insurer, including competition, frequency of occurrence or severity of catastrophic events, levels of capacity, general economic conditions and other factors. This may cause a decline in revenue at times in the cycle if we choose not to reduce our product prices in order to maintain our market position, because of the adverse effect on profitability of such a price reduction. We can be expected therefore to experience the effects of such cyclicality and changes in customer expectations of appropriate premium levels, the frequency or severity of claims or other loss events or other factors affecting the insurance industry that generally could have a material adverse effect on our results of operations and financial condition.
The insurance and related businesses in which we operate may be subject to periodic negative publicity, which may negatively impact our financial results. The nature of the market for the insurance and related products and services we provide is that we interface with and distribute our products and services ultimately to individual consumers. There may be a perception that these purchasers may be unsophisticated and in need of consumer protection. Accordingly, from time to time, consumer advocate groups or the media may focus attention on our products and services, thereby subjecting our industries to periodic negative publicity. We may also be negatively impacted if another company in one of our industries engages in practices resulting in increased public attention to our businesses. Negative publicity may result in increased regulation and legislative scrutiny of industry practices as well as increased litigation, which may further increase our costs of doing business and adversely affect our profitability by impeding our ability to market our products and services, requiring us to change our products or services or increasing the regulatory burdens under which we operate.
The impact of investigations of possible anti-competitive practices by the company cannot be predicted and may have a material adverse impact on our results of operations, financial condition and financial strength ratings.
We may be exposed to environmental liability from our commercial mortgage loan and real estate investments. As a commercial mortgage lender, we customarily conduct environmental assessments prior to making commercial mortgage loans secured by real estate and before taking title through foreclosure to real estate collateralizing delinquent commercial mortgage loans held by us. Based on our
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environmental assessments, we believe that any compliance costs associated with environmental laws and regulations or any remediation of affected properties would not have a material adverse effect on our results of operations or financial condition. However, we cannot provide assurance that material compliance costs will not be incurred by us.
The effects of emerging claims and coverage issues on our business are uncertain. As industry practices and legal, judicial, social and other conditions change, unexpected and unintended issues related to claims and coverage may emerge. These issues may adversely affect our business by either extending coverage beyond our underwriting intent or by increasing the number or size of claims. In some instances, these changes may not become apparent until some time after we have issued insurance or reinsurance contracts that are affected by the changes. As a result, the full extent of liability under our insurance and reinsurance contracts may not be known for many years after a contract is issued. Recent example of emerging claims and coverage issues include:
larger settlements and jury awards in cases involving professionals and corporate directors and officers covered by professional liability and directors and officers liability insurance and
a growing trend of plaintiffs targeting property and casualty insurers in class action litigation related to claims handling, insurance sales practices and other practices related to the conduct of our business.
We may be unable to accurately predict benefits, claims and other costs or to manage such costs through our loss limitation methods, which could have a material adverse effect on our results of operations and financial condition. Our profitability depends in large part on accurately predicting benefits, claims and other costs, including medical and dental costs, and predictions regarding the frequency and magnitude of claims on our disability and property coverage. It also depends on our ability to manage future benefit and other costs through product design, underwriting criteria, utilization review or claims management and, in health and dental insurance, negotiation of favorable provider contracts. Utilization review is a review process designed to control and limit medical expenses, which includes, among other things, requiring certification for admission to a health care facility and cost-effective ways of handling patients with catastrophic illnesses. Claims management entails the use of a variety of means to mitigate the extent of losses incurred by insureds and the corresponding benefit cost, which includes efforts to improve the quality of medical care provided to insureds and to assist them with vocational services. The aging of the population and other demographic characteristics and advances in medical technology continue to contribute to rising health care costs. Our ability to predict and manage costs and claims, as well as our business, results of operations and financial condition may be adversely affected by:
changes in health and dental care practices;
inflation;
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new technologies;
the cost of prescription drugs;
clusters of high cost cases;
changes in the regulatory environment;
economic factors;
the occurrence of catastrophes; and
numerous other factors affecting the cost of health and dental care and the
frequency and severity of claims in all our business segments.
The judicial and regulatory environments, changes in the composition of the kinds of work available in the economy, market conditions and numerous other factors may also materially adversely affect our ability to manage claim costs. As a result of one or more of these factors or other factors, claims could substantially exceed our expectations, which could have a material adverse effect on our results of operations and financial condition.
As industry practices and legal, judicial, social and other environmental conditions change, unexpected and unintended issues relating to claims and coverage may emerge. These issues could materially adversely affect our results of operations and financial condition by either extending coverage beyond our underwriting intent or by increasing the number or size of claims or both. We may be limited in our ability to respond to such changes, by insurance regulations, existing contract terms, contract filing requirements, market conditions or other factors.
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Annexure II: Overview of Insurance Industry
1. Introduction
2. Background- A brief history about Insurance Industry
2.1. Pre-Nationalization
2.2. Nationalization of the Sector
2.3. Insurance Reforms
2.4. Interim Insurance Regulatory Authority
2.5. Insurance Regulatory and Development Authority
2.6. Approach to Reforms
3. Global Insurance Environment- A brief on global and domestic scenario
covering Insurance Penetration, Density, growth of Industry etc
3.1. Global Insurance Environment
3.2. Domestic Market Overview
4. Industry Outlook
4.1. General insurer
4.1.1. Market Share (% share)
4.1.2 Growth of Business
5. Analysis of Trends
5.1. General Insurance
5.1.1. Tariff and non-tariff Products
5.1.2. Enlarged Coverage
5.1.3. Introduction of New Products
5.1.4. Reinsurance Supported Products
5.2. Health Insurance
5.2.1. Enlarged Coverage
5.2.2. Introduction of New Products
5.3 Reinsurance Business
6. Investment of Funds by the Insurance Industry
6.1 Investment Pattern
Page | 20
7. FDI in Insurance Sector
8. Intermediaries
8.1. Commission Structure
8.1.1 General Insurers
9. Changes in Insurance Legislation
9.1. Changes in Insurance Legislation
9.2. Regulatory Issues and Changes
9.3. Consumer Related Changes
9.4. Removal of Redundant Clauses
9.5. Enhancement of Enforcement Powers and Levy of Penalties
10. Corporate Governance Guidelines for Insurance Companies
11. Conclusion
Page | 21
ANNEXUREIII: Comparison table on disclosures made in offer documents of General insurance companies in other jurisdictions Particular Allied World
Assurance Company
Holdings Limited
(July 2006-bermuda)
Standard
Insurance Limited
Dhaka Insurance
Company Limited
Assurance- IRDA REMARKS Whether
common
item for
life and
nonlife
insurance
companies
( Yes / No)
(July 2008- Dhaka)
1 Business Description
Line of Business Property (27%) and
Casualty (40%)
insurance and
Reinsurance (23%)
Fire, Marine, motor,
and miscellaneous
Fire, Marine, motor, and
miscellaneous
seems to be a
composite company.
The detail as Health
product, Life product,
other group products
given.
YES
1.a Gross Premium Segment wise detail
given
Only at company
level no segment
wise breakup given
Segment wise detail
given
Segment wise detail
given
Covering various business
line and segment wise
details. Also disclosure on
business underwritten on
geography wise basis
YES
1.b Cross selling Not available Not available Not available Segment wise detail
given
TO BE DEFINED BY IRDA --
Between insurance & banking
(details of referrals and
bancassurance to be
provided)
YES
1.c Distribution network Brokers Network of
professional staff
and commission
agents- no details
given
Through head office and
branch office – no further
details given
Brokers, Agents and
other distribution net
work detail along with
the business generated
through each channel
Agents, corporate agents,
bancassurance, brokers and
Referrals. The same will be
specified by IRDA as an
additional disclosure.
YES
Page | 22
Particular Allied World
Assurance Company
Holdings Limited
(July 2006-bermuda)
Standard
Insurance Limited
Dhaka Insurance
Company Limited
Assurance- IRDA REMARKS Whether
common
item for
life and
nonlife
insurance
companies
( Yes / No)
(July 2008- Dhaka)
given.
1.d Retention Ratio Ratio not clearly given
but can be inferred
Given Covered in the Credit
Rating Report
Already covered in KEY
analytical ratio specified by
IRDA
N
1.e Growth Ratio Not Applicable Not Applicable Not Applicable Already covered in KEY
analytical ratio specified by
IRDA
N
1.f Underwriting ratio Underwriting Profit/Loss
% is given
Underwriting
Profit/Loss % is
given
Underwriting Profit/Loss
% is given
Segment wise ratio
given
Already covered in KEY
analytical ratio specified by
IRDA
N
2 Income Statement
2.a Gross Premium By different business
line
Not available By different business line By different business
Line
Would be covered under the
Revenue Statement specific
for General insurance
companies
YES
2.b Net Premium By different business
line
By different
business line
By different business line -do- is covered under the Revenue
Statement specific for
General insurance companies
YES
2.c Margin per product
line
Not available Not available Not given Not given Not being captured at
present. However, segment
wise disclosure have already
YES
Page | 23
Particular Allied World
Assurance Company
Holdings Limited
(July 2006-bermuda)
Standard
Insurance Limited
Dhaka Insurance
Company Limited
Assurance- IRDA REMARKS Whether
common
item for
life and
nonlife
insurance
companies
( Yes / No)
(July 2008- Dhaka)
been specified.
2.d Loss Ratio Ratio given for the
company as a whole
*Ratio given for the
company as a whole
Not given Segment wise ratio
given Already covered in key
analytical ratios specified
by IRDA
N
2.e Acquisition cost
ratio
Ratio given for the
company as a whole
Not available Not given Not given In India, it is a commission
ratio, which is already
covered in key analytical
ratios specified by IRDA
N
2.f Expense ratio Ratio given for the
company as a whole
Ratio given for the
company as a whole
Management Exp
allocation segment wise
given
ratio given for the
company as a whole
same as above YES
2.g Combined ratio Ratio given for the
company as a whole
Ratio given for the
company as a whole
Not given ratio given for the
company as a whole
same as above N
3 Balance Sheet
Page | 24
Particular Allied World
Assurance Company
Holdings Limited
(July 2006-bermuda)
Standard
Insurance Limited
Dhaka Insurance
Company Limited
Assurance- IRDA REMARKS Whether
common
item for
life and
nonlife
insurance
companies
( Yes / No)
(July 2008- Dhaka)
3.a Investment Yield For overall investments For overall
investments
Briefly given in Credit
rating report
Yield for each
investment segment
given
Already covered in the
financial statement and the
continuous disclosures. The
ratio is computed on
shareholders fund and
policyholders funds
YES
3.b Investment portfolio Govt/ non-govt, ABS,
MBS ,fixed, hedge
fund,
Investments in
Fixed Deposit
receipts (82%) and
capital markets (
12%)
No details given Detail given. Already covered in the
financial statements to be
restated.
YES
3.c Cost of liability Not available Not given Not given Not given In the Indian context, the only
form of capital presently
permitted is Equity. As such,
there is presently only the
notional cost of capital
involved. For the present,
disclosures in this context
may not be required.
YES
4 Capital
4.a Capitalization Given Already covered as a part of
the financial statement.
YES
Page | 25
Particular Allied World
Assurance Company
Holdings Limited
(July 2006-bermuda)
Standard
Insurance Limited
Dhaka Insurance
Company Limited
Assurance- IRDA REMARKS Whether
common
item for
life and
nonlife
insurance
companies
( Yes / No)
(July 2008- Dhaka)
4.b Solvency margin Given Given Given Broad Parameters and
the overall compliance
position given of Risk
Based Capital Given
Covered in the key analytical
ratios prescribed by the
IRDA.
YES
4.c Claims outstanding Given Estimated Liability in
respect of outstanding
claims whether due or
intimated is given
segment wise
Outstanding for
company as a whole
given
Though, covered in the
financial statement. However,
age wise break-up of the
same may also be included.
Including the trends for last
five years.
NO
4.d Reinsurance
Balance
Outstanding
Segment wise detail
given
same as above NO
5 Risk Management
5.a Market risk No comprehensive
disclosures briefly
covered at various
places
No comprehensive
disclosures very
briefly mentioned in
Risk factors
No comprehensive
disclosures very briefly
mentioned in Risk factors
Covered Covered YES
5.b Operational risk Covered YES
5.c Credit risk Covered YES
5.d Liquidity risk Covered YES
5.e Reinsurance risk Same as above Same as above Same as above Covered NO
Page | 26
Particular Allied World
Assurance Company
Holdings Limited
(July 2006-bermuda)
Standard
Insurance Limited
Dhaka Insurance
Company Limited
Assurance- IRDA REMARKS Whether
common
item for
life and
nonlife
insurance
companies
( Yes / No)
(July 2008- Dhaka)
5.f Assets Liability
Management
Not available Not available Covered YES
6 Investment
6.a Equity No details given. Only
brief line items and
maturity profile given
Cost- market value
and gain/loss given
No details given. Only
brief line items
The investment in
equity (common stock)
for last three years
given
At present covered only in
the financial statement. It is
suggested that the
investment yield and the
industry wise bifurcation in
brief may also be captured.
YES
6.b Bonds No details given. Only
brief line items and
maturity profile given
No details given. Only
brief line items
The investment in
Bonds for last three
years along with the
return generated given
Already covered in the
periodical disclosures to be
made by the insurers.
However, the same may also
be covered in the IPO
Disclosures.
YES
7 Reinsurance
7.a No. of reinsurers Value of reinsurance
ceded given
Major only one Not given- only broad
details of reinsurance
arrangement given
Though, the no of
reinsurers has not
been given.
Confirmation that
reinsurance
Along with disclosure of the
information as indicated, the
overall strategy and
reinsurance policy of the
insurers and the types of
YES
Domestic Details Not given Details Not given Details Not given NO
Page | 27
Particular Allied World
Assurance Company
Holdings Limited
(July 2006-bermuda)
Standard
Insurance Limited
Dhaka Insurance
Company Limited
Assurance- IRDA REMARKS Whether
common
item for
life and
nonlife
insurance
companies
( Yes / No)
(July 2008- Dhaka)
Foreign arrangement is with
reinsurer having rating
of at least _A by AM
best is given.
reinsurance treaties entered
into would also need to be
indicated.
NO
7.b Rating of reinsurers Not available Not available Not given YES
7.c Exposure of
reinsurers
Not available Not available Not given Total Exposure to
reinsurer given
YES
7.d Type of
arrangement
/contract for re-
insurance
Not given Not given Not given Not given same as above NO
7.e Maximum Probable
Ratio
Not given Not given Not given same as above NO
7.f Incurred but not
reported/ Incurred
but not enough
reported
Given Not given Not given same as above NO
8 Interest rate
sensitivity
Briefly mentioned Not available Not Given Given along with
detailed analysis
would form part of various
risk factors. However, a
specific disclosure for
interest rate sensitivity may
be made
YES
8.a Equity price
sensitivity
Not available Not available Not Given YES
Page | 28
Particular Allied World
Assurance Company
Holdings Limited
(July 2006-bermuda)
Standard
Insurance Limited
Dhaka Insurance
Company Limited
Assurance- IRDA REMARKS Whether
common
item for
life and
nonlife
insurance
companies
( Yes / No)
(July 2008- Dhaka)
9 Management Report on internal control over financial reporting
Internal control
reporting
Not available only very brief
mention- Audit
Committee handles
the same
Not Given given Already covered as a part of
MD&A
YES
10 Investment
10.a Classification Majorly Fixed income
classified as Available
for sale
Investment is in
FDR (82%)and
Capital Market
(18%)
Not Given Detailed classification
along with return
generated on the same
for last three years
given
Presently the portfolio is not
required to be segregated
into HTM/HFT/AFS.
YES
10.b Valuation Available for sale
carried at market
values as at balance
sheet
Investments are
stated at their
acquisition costs
Not Given Given along with
detailed analysis
The same is already covered
in the accounting policies
and the basis of valuation of
investments.
YES
10.c Unrealized gains/
losses
Disclosed net of taxes,
as “accumulated other
comprehensive income”
as a separate
component of
shareholders’ equity
NA Not Given Not given Manner of arriving at the
unrealized gains / losses
needs to be indicated for
better understanding of the
public at large.
YES
Page | 29
Particular Allied World
Assurance Company
Holdings Limited
(July 2006-bermuda)
Standard
Insurance Limited
Dhaka Insurance
Company Limited
Assurance- IRDA REMARKS Whether
common
item for
life and
nonlife
insurance
companies
( Yes / No)
(July 2008- Dhaka)
11 Others
11.a Deferred acquisition
cost
Amortized Not given Not given segment wise details
given
In the Indian context, the
acquisition costs are not
permitted to be deferred.
Thus, no disclosures are
required.
YES
11.c Risk Based Capital Not Given Not Given Not Given given These prescriptions are
presently not applicable to
insurance companies in India
YES
11.d Monitoring
Mechanism
Bermuda Monetary
Authority
Controller of
insurance
Not Given given Already decided that no
monitoring agency is
required and IRDA will play
the role of monitoring agency
YES
12 Objects of the Issue
Purpose Repayment of loan and
general corporate
purpose including
equity in subsidiary
Will augment capital
base and will be
used for investment
purpose
Strengthening the capital
base
To reply the
outstanding
indebtedness position
It is in line YES
30
ANNEXURE IV: Glossary of terms used in Insurance Industry
GENERAL INSURANCE
Glossary
“1/24th method and 1/365th method”
Under the annual basis of accounting, the provision for unearned premiums is recognized to cover the proportion of retained premiums written in a year which relate to the period of risk from the first date in the following financial year to the subsequent date of expiry of policies. Unearned premiums can be calculated on a time apportionment basis, principally on either a daily or monthly pro rata basis. The 1/365th method and 1/24th method are the main time apportionment methods to calculate unearned premiums under the 1/365th method, the unearned premium reserve is the aggregate of the unearned premiums, calculated on a daily pro rata basis, in respect of the premiums relating to the unexpired periods of the respective insurance policies at the end of the financial period the 1/24th method is based on the general assumptions that the premiums are spread uniformly over the month and the average date of issue of all policies is the middle of that month.
“accident year” The 12-month period in which loss events occurred, regardless of when the losses are actually reported, booked or paid.
“actuaries” Specialists trained in mathematics, statistics and accounting who are responsible for rate, reserve and dividend calculations and other statistical studies
“agent” An individual who is appointed by an insurance company to sell insurance policies on behalf of, and within the scope authorized by, the insurance company, and who receives a commission from the insurance company.
“broker” A brokerage firm which represents and negotiates insurance contracts on behalf of the insured party, and who receives a commission from the insurance company.
“capital insurance”
Insurance coverage provided by a company insuring the risks of its parent entity and/ or its associated corporations.
“captive insurer” An insurance company which carries on general insurance business only and such business (1) does not relate to any liabilities or risks in respect of Which persons are required by law to be insured and (2) is restricted to the insurance and reinsurance of risks of the companies within the same grouping of companies to which that company belongs.
“case reserves” Reserves for claims and claims handling costs established with respect to specific, individual reported claims.
“catastrophe “ A severe loss, usually involving risks such as earthquake, flood, windstorm and other similar natural/ man-made disasters.
“catastrophe loss”
Loss and directly identified LAE resulting from catastrophes.
31
Glossary
“catastrophe excess of –loss reinsurance”
A form of excess-of-loss reinsurance which, subject to a specified limit, indemnified the ceding company for the amount of loss in excess of a specified retention with respect to an accumulation of losses resulting from an insured catastrophe. The actual reinsurance document is called a “catastrophe cover”.
“cede” or ”ceding company”
When an insurer reinsures its risk with another insurer or reinsurer, it “cedes” business.
“claim” A demand made by an insured person or the beneficiary of an insurance policy in respect of a loss which may come within the cover provided on the sum insured by the policy.
“claims handling costs”
The expenses of settling general claims, including legal and other fees and general expenses.
“claims incurred”
The total amount of loss and claims handling costs incurred by an insurance company under a policy or policies, whether paid or unpaid.
“claims reserves”
case reserves plus IBNR reserves
“combined loss amount”
For the purpose of calculating the minimum solvency margin required by the CIRC, the sum of the loss paid, change in loss and LAE reserves and loss paid for assumed reinsurance, less losses recovered from reinsurance companies, salvage and other recoverable amounts.
“combined ratio” The sum of the loss ratio and the expense ratio for a general insurance company or a reinsurance company. A combined ratio below 100 generally indicates profitable underwriting. A combined ratio over 100 generally indicates unprofitable underwriting. An insurance company with a combined ratio over 100 may be profitable to the extent net investment results exceed underwriting losses.
“commission” A payment to an agent or broker by an insurance company for service in respect of a sale of an insurance product.
“compulsory insurance”
Insurance which the State, by law or regulation, requires to be taken up
“credit and guarantee insurance”
Insurance that covers credit risk or exposure. Such insurance can be divided into credit insurance and guarantee insurance. Credit insurance is provided by an insurer to an obligee to cover the credit of an obligor such that the insurer indemnifies the obligee against losses caused by the obligor failing to perform its obligations under its contract with the obligee. Guarantee insurance involves the provision by an insurer, at the request of an obligor, of a guarantee in favour of an obligee such that if the obligor does not perform its contractual obligations and causes economic losses to the obligee, the insurer indemnifies the obligee against the losses.
“deductible” The amount of loss that an insured retains.
“deferred acquisition costs”
Primarily commissions and underwriting and personnel expenses net of reinsurance commissions recovered, which vary with and are primarily related to the production of new and renewal business, and
32
Glossary
which are deferred and amortized rateably over the terms of the insurance policies.
“direct premium written” or “direct premiums written”
The amounts before government levies and surcharges charged by an insurer from insured in exchange for coverage provided in accordance with the terms of an insurance contract. It excludes all reinsurance premiums, either assumed or ceded.
“excess of loss reinsurance treaty”
A form of non-proportional reinsurance under which the reinsurer agrees to reimburse the ceding company for all losses in excess of a predetermined amount, subject to a predetermined maximum limit. Premiums paid by the ceding company to the reinsurer for excess of loss reinsurance are generally not in the same proportion to the claims recovered by the ceding company from the reinsurer
“expense ratio” The ratio of business operating expenses to net earned premiums
“facultative reinsurance”
The reinsurance of all or a portion of specific, individual risks to a reinsurer on a case-by-case basis.
“general insurance”
Also called “non-life insurance” or “property and casualty insurance” and including insurance such as motor, personal accident, goods in transit, employees’ compensation, other liabilities and property insurance and medical insurance.
“gross premiums written”
Direct premiums written plus any reinsurance premiums assumed by the insurer
“group insurance”
, personal accident and medical insurance taken out for groups of individuals (typically employees of a common employer).
“IBNR/ IBNER reserves”
Reserves for estimated losses and loss adjustment expenses which have been incurred but not yet reported to the insurer or reinsurer, including future development of claims which have been reported to the insurer or reinsurer but where the established reserves may ultimately prove to be inadequate.
“long-tail” Insurance business with a relatively longer period of exposure to potential claims and/or with a relatively longer period of settlement, generally more than three years.
“long term business”
Means any of the classes of insurance business which include, among others, , t health, Contractor Risk, Engineer Risk etc.
“loss” An occurrence that is the basis for submission and/or payment of claim. Losses may be covered, limited or excluded from coverage, depending on the terms of the policy.
“loss and LAE reserves”
Liabilities established by insurers to reflect the estimated cost of claims incurred that the insurer will ultimately be required to pay in respect of insurance it has written. Reserves
“loss adjustment expenses or LAE”
The expenses of settling claims, including legal and other fees and the portion of general expenses allocated to claim settlement costs. For the purpose of calculating reserves, we only include external claims
33
Glossary
related expenses, such as fees for external legal advisors and external claims adjustors.
“incurred claim ratio”
The ratio of loss incurred net of reinsurance recovered to net premiums earned.
“loss ratio” The ratio of a general insurance or reinsurance company’s incurred claims and claims expenses to net earned premiums.
‘loss incurred” The total amount of loss and LAE incurred by an insurance company under a policy or policies, whether paid or unpaid
“loss paid” The total amount of loss incurred and paid by insurance company under a policy or policies.
“net written premiums”
Gross written premiums for a given period less premiums ceded to reinsurers during such period.
“net earned premiums”
Net written premiums less the change in net unearned premium reserves.
“net premiums earned”
Net premiums written less the change in net unearned premiums reserves.
non-proportional reinsurance treaty”
A reinsurance contract under which the reinsurance coverage of loss is not directly proportional to the loss of the ceding company. Generally, non-proportional reinsurance is also known as “excess of loss reinsurance”.
“penetration rate”
Direct written premiums as a percentage of GDP
“pool” An organization of insurers or reinsurers through which particular types of risks are underwritten with premiums, losses and expenses being shared in agreed-upon percentages.
“General insurance”
General Insurance means Property and casualty insurance, which includes property loss and damage insurance, liability insurance and credit and guarantee insurance.
“premium” The amount charged on policies and contracts issued, renewed or reinsured by an insurance company.
“premiums earned”
That portion of gross written premium in current and past periods which applies to the expired portion of the policy period, calculated by subtracting changes in net unearned premium reserves from gross written premiums.
Premium Ceded Means the premium payable to Reinsurer on ceding.
“property insurance”
Insurance that provides coverage to a person with an insurable interest in tangible property for that person’s property loss, damage or loss of use.
“proportional reinsurance treaty”
A reinsurance contract under which the ceding company and the reinsurer share premiums and claims in agreed proportions.
Policy Period The period of time in which a policy is in effect.
Probable Maximum Loss (PML):
The largest loss thought probable under an insurance policy; normally applied to material damage risks where the total sum insured is not considered to be at risk from one loss event.
34
Glossary
“quota share” or “quota share reinsurance”
Reinsurance where the insurer cedes an agreed-upon percentage of liabilities, premiums and loss for each policy covered on a pro rata basis.
“rate” or “premium rate”
Consideration paid per unit of insurance as a percentage of insured value.
“reinsurance” The sharing or spreading of a risk by an insurer ceding part of an insured risk to a reinsurer.
“reinsurance commission”
A commission paid to an insurance company by a reinsurer.
“retained premiums”
Gross premiums written less reinsurance premiums ceded.
“retention” The risks kept and assumed by an insurer or reinsurer after ceding a part of such risks to another reinsurance company. Losses in excess of the retention level up to the outer limit of a reinsurance program, are paid by the reinsurer. In proportional treaties, the retention may be a percentage of the original policy’s limit. In excess-of-loss reinsurance, the retention is a dollar amount of loss, a loss ratio or a percentage.
“risk unit” The maximum amount of loss that can arise from a single risk under a single policy.
“salvage” The property or amount or money an insurer recovers through the sale of property transferred to the insurer as a result of a loss payment.
“short-tail” Insurance business with a relatively shorter period of exposure to potential claims and/or with a relatively shorter period of settlement, generally less than three years.
“surplus treaty” A form of proportional reinsurance treaty whereby the reinsured cedes and the reinsurer accepts that share of the risk which exceeds the reinsured’s retention.
“third-party liability”
A liability owed to a claimant by the insured party.
“treaty reinsurance”
Reinsurance of blocks of risks, whereby all risks within a certain class or classes, and within the scope defined in the relevant reinsurance agreement known as a treaty, are accepted by the reinsurer. Typically, in treaty reinsurance, the direct insurer (that is, reinsured) has the obligation to offer, and the reinsurer is obligated to accept, a specified portion of all that type or category of risks originally written by the insurer.
“turnover” Gross written premiums net of government levies and surcharges and discounts and returns
“underwriting” The insurance function that is responsible for (1) assessing and classifying the degree of risk a proposed insured party represents and (2) making a decision concerning coverage of that risk. Also called risk selection or selection of risks.
“underwriting capacity” Or “underwriting
The amount of exposure that an insurer or reinsurer is willing or able to place at risk. Underwriting capacity may apply to a single risk, a line of business or an entire book of business. Underwriting capacity may be
35
Glossary
limit” constrained by legal restrictions, corporate restrictions or indirect restrictions.
“underwriting profit” or “underwriting loss”
The pre-tax profit-or loss experienced by an insurance company after deducting net loss incurred, amortization of deferred acquisition costs, insurance protection expense and general and Administrative expenses from net premiums earned. This pre-tax profit or loss includes reinsurance assumed and ceded but excludes Investment income.
“unearned premiums”
The portion of premiums that is allocable to the unexpired portion of the policy term or paid in advance for insurance or reinsurance that has not yet been provided.
36
ANNEXURE V
FORMAT FOR QUARTERLY DISCLOSURES ON CUSTOMERS AND INTERMEDIARIES GRIEVANCES
Insurer Date: (Rs in Lakhs)
Sl No.
Particulars Opening Balance *
Additions
Resolved
Outstanding
Fully Accepted
Partial Accepted
Rejected
1A Complaints made by customers
a) Sales Related
Fiduciary
Non-fiduciary
b) New Business Related
Fiduciary
Non-fiduciary
c) Policy Servicing related
Fiduciary
Non-fiduciary
d) Claim Servicing related
Fiduciary
Non-fiduciary
e) Others
Fiduciary
Non-fiduciary
Total-Fiduciary
Total -Non-Fiduciary
1B Complaints made by intermediaries
1A Complaints made by customers
a) Sales Related
Fiduciary
Non-fiduciary
b) New Business Related
Fiduciary
Non-fiduciary
c) Policy Servicing
37
Sl No.
Particulars Opening Balance *
Additions
Resolved
Outstanding
Fully Accepted
Partial Accepted
Rejected
related
Fiduciary
Non-fiduciary
d) Claim Servicing related
Fiduciary
Non-fiduciary
e) Others
Fiduciary
Non-fiduciary
Total-Fiduciary
Total -Non-Fiduciary
2 Ageing of Outstanding Complaints Fiduciary
Non-Fiduciary
Complaints made by customers
a) Less than 15 days
b) 16-30 days
c) 1-3 months
d) More than 3 months
Total
Complaints made by intermediaries
Less than 15 days
16-30 days
1-3 months
More than 3 months
Total
* Opening balance should tally with the closing balance of the previous financial year.