37 th AIO Conference 23 – 26 May, 2010 Banjul, Gambia Re-building Consumer trust and confidence after the Global Financial Crisis STEVEN L. CHETTY MBA. FCII. ANZIIF [Fellow] CIP STEVEN L. CHETTY MBA. FCII. ANZIIF [Fellow] CIP DIRECTOR DIRECTOR SUN REINSURANCE BROKER, UAE SUN REINSURANCE BROKER, UAE

ISSUES FOR DISCUSSION FORWARD FORWARD INTRODUCTION INTRODUCTION THE AFRICAN INSURANCE ENVIRONMENT IN PERSPECTIVE THE AFRICAN INSURANCE ENVIRONMENT IN PERSPECTIVE INSURANCE REGULATION IN AFRICA INSURANCE REGULATION IN AFRICA DEVELOPMENTS IN THE NIGERIAN INSURANCE MARKET DEVELOPMENTS IN THE NIGERIAN INSURANCE MARKET THE NEED FOR INSURANCE REGULATIONS IN AFRICA THE NEED FOR INSURANCE REGULATIONS IN AFRICA INSTITUTIONAL FRAMEWORK INSTITUTIONAL FRAMEWORK REGULATORY MODEL REGULATORY MODEL CHALLENGES CHALLENGES WAY FORWARD WAY FORWARD CONCLUSION CONCLUSION FORWARD FORWARD INTRODUCTION INTRODUCTION THE AFRICAN INSURANCE ENVIRONMENT IN PERSPECTIVE THE AFRICAN INSURANCE ENVIRONMENT IN PERSPECTIVE INSURANCE REGULATION IN AFRICA INSURANCE REGULATION IN AFRICA DEVELOPMENTS IN THE NIGERIAN INSURANCE MARKET DEVELOPMENTS IN THE NIGERIAN INSURANCE MARKET THE NEED FOR INSURANCE REGULATIONS IN AFRICA THE NEED FOR INSURANCE REGULATIONS IN AFRICA INSTITUTIONAL FRAMEWORK INSTITUTIONAL FRAMEWORK REGULATORY MODEL REGULATORY MODEL CHALLENGES CHALLENGES WAY FORWARD WAY FORWARD CONCLUSION CONCLUSION 2 37 th AIO Conference 23 – 26 May, 2010 Banjul, Gambia

Introduction Introduction Key Concerns as Reinsurance Brokers Key Concerns as Reinsurance Brokers State of African Insurance/Reinsurance Industry State of African Insurance/Reinsurance Industry Trend Drivers Trend Drivers Global Trend Global Trend Conclusion & Recommendations Conclusion & Recommendations 37 th AIO Conference 23 – 26 May, 2010 Banjul, Gambia SCOPE

I am delighted to be presenting a paper at this Africa’s top Insurance Forum in such distinguished company and to have the opportunity of talking to you on “Re-building the consumer trust and confidence after the Global Financial Crisis” in particular in the Africa Insurance Industry context. I am delighted to be presenting a paper at this Africa’s top Insurance Forum in such distinguished company and to have the opportunity of talking to you on “Re-building the consumer trust and confidence after the Global Financial Crisis” in particular in the Africa Insurance Industry context. Indeed, many of you here will probably be upbeat by the fact the first sign and main crisis arose from the western world, however, due to Globalization, like they say we now all live in a “Village”, the effects of the economic crisis from the western world will always filter to the rest of the world and will spare no countries. Indeed, many of you here will probably be upbeat by the fact the first sign and main crisis arose from the western world, however, due to Globalization, like they say we now all live in a “Village”, the effects of the economic crisis from the western world will always filter to the rest of the world and will spare no countries. 37 th AIO Conference 23 – 26 May, 2010 Banjul, Gambia FORWARD

The so called ‘Great Moderation’ of the last 50 years finally ended, not with a whisper but a bang. The crash has severely damaged wealth and confidence and still causing losses in financial sector, construction and property related jobs. The so called ‘Great Moderation’ of the last 50 years finally ended, not with a whisper but a bang. The crash has severely damaged wealth and confidence and still causing losses in financial sector, construction and property related jobs. Adding to the problems, access to credit dried up in the midst of the Banking crash and this situation is only gradually improving, largely thanks to provision of Central Bank funding and Government intervention. Adding to the problems, access to credit dried up in the midst of the Banking crash and this situation is only gradually improving, largely thanks to provision of Central Bank funding and Government intervention. The accelerating deterioration in consumer spending through 2008 has hit sales of cars, electronic equipment and Insurance was of no exception. The accelerating deterioration in consumer spending through 2008 has hit sales of cars, electronic equipment and Insurance was of no exception. In response to the slump in volumes, prices plummeted to attract buyers In response to the slump in volumes, prices plummeted to attract buyers 37 th AIO Conference 23 – 26 May, 2010 Banjul, Gambia

Clearly you have a situation of job lossess and insecurity, generating a downward spiral in consumer sentiment, spending and economic activity. Clearly you have a situation of job lossess and insecurity, generating a downward spiral in consumer sentiment, spending and economic activity. In the circumstances, many companies will not just be unwilling but unable to maintain investment spending In the circumstances, many companies will not just be unwilling but unable to maintain investment spending The sign of expectations for the global economy is that commodity prices have slumped to about a third of their mid-2008 peaks, or around half the average level seen in The sign of expectations for the global economy is that commodity prices have slumped to about a third of their mid-2008 peaks, or around half the average level seen in Provided the price fall is passed on, this should benefit consumers, indeed Consumers! Provided the price fall is passed on, this should benefit consumers, indeed Consumers! 37 th AIO Conference 23 – 26 May, 2010 Banjul, Gambia

7 It will not be out of place to state from the beginning that in the complex field of risk management, insurance has become universally recognized and accepted as the most efficient response to rescue risk related issues. As a result, the position today is that no modern economy can survive or prosper without the active support of a disciplined and viable insurance industry. This is evident from the 2007 World Insurance Market Report published by Sigma Publication where the 15 major economies have significant contributions from insurance sector to their GDP ranging between 5-15%. It is gladdening to note that South Africa is amongst the first 5 of such economies It will not be out of place to state from the beginning that in the complex field of risk management, insurance has become universally recognized and accepted as the most efficient response to rescue risk related issues. As a result, the position today is that no modern economy can survive or prosper without the active support of a disciplined and viable insurance industry. This is evident from the 2007 World Insurance Market Report published by Sigma Publication where the 15 major economies have significant contributions from insurance sector to their GDP ranging between 5-15%. It is gladdening to note that South Africa is amongst the first 5 of such economies INTRODUCTION

Within the last decade, certain factors have made unprecedented positive impact on global growth and development of insurance. These include liberalization of world trade, increasing efficiency, advances in Information Technology and the integration of world financial system which now provide unparallel economic, cultural, and recreational opportunities. Within the last decade, certain factors have made unprecedented positive impact on global growth and development of insurance. These include liberalization of world trade, increasing efficiency, advances in Information Technology and the integration of world financial system which now provide unparallel economic, cultural, and recreational opportunities. These developments have created new opportunities for insurance business in Africa; as the African market is now open for global exploration and competition. Conversely, this has poses new challenges for insurance regulation These developments have created new opportunities for insurance business in Africa; as the African market is now open for global exploration and competition. Conversely, this has poses new challenges for insurance regulation in Africa. in Africa. Within the last decade, certain factors have made unprecedented positive impact on global growth and development of insurance. These include liberalization of world trade, increasing efficiency, advances in Information Technology and the integration of world financial system which now provide unparallel economic, cultural, and recreational opportunities. Within the last decade, certain factors have made unprecedented positive impact on global growth and development of insurance. These include liberalization of world trade, increasing efficiency, advances in Information Technology and the integration of world financial system which now provide unparallel economic, cultural, and recreational opportunities. These developments have created new opportunities for insurance business in Africa; as the African market is now open for global exploration and competition. Conversely, this has poses new challenges for insurance regulation These developments have created new opportunities for insurance business in Africa; as the African market is now open for global exploration and competition. Conversely, this has poses new challenges for insurance regulation in Africa. in Africa th AIO Conference 23 – 26 May, 2010 Banjul, Gambia INTRODUCTION contd.

What are the economic consequences of the Global Crisis for the Insurance Industry especially in Africa? What are the economic consequences of the Global Crisis for the Insurance Industry especially in Africa? What change arises as a reaction to the financial crisis in the field of insurance supervision in particular in the regulatory environment in general? What change arises as a reaction to the financial crisis in the field of insurance supervision in particular in the regulatory environment in general? CENTRAL QUESTIONS 37 th AIO Conference 23 – 26 May, 2010 Banjul, Gambia

Risk Anyone? Risks are part of daily life, cannot eliminate them all Risks are part of daily life, cannot eliminate them all Must learn to live with them and learn how to best manage them Must learn to live with them and learn how to best manage them It is same in business. Need to identify, measure and manage risks in the best way we can It is same in business. Need to identify, measure and manage risks in the best way we can Behind any risk there is an opportunity Behind any risk there is an opportunity To RISK or NOT TO RISK That is the question 37 th AIO Conference 23 – 26 May, 2010 Banjul, Gambia

Was this Crisis avoidable? YES Was this Crisis avoidable? YES What Caused it? What Caused it? We all know :- sub-prime mortgages, Overstretched leveraging, Collateralization happiness etc…. We all know :- sub-prime mortgages, Overstretched leveraging, Collateralization happiness etc….BUT Did it occur because of lack of rules? Did it occur because of lack of rules? Only in part – mostly caused by inadequate attention to intertwining effects in financial markets of new “innovative” products. Only in part – mostly caused by inadequate attention to intertwining effects in financial markets of new “innovative” products. WHAT A CRISIS 37 th AIO Conference 23 – 26 May, 2010 Banjul, Gambia

If we had other regulations, could we have avoided this crisis? If we had other regulations, could we have avoided this crisis? Maybe but by a lesser magnitude Maybe but by a lesser magnitude Basel II framework was issued already in 2005 Basel II framework was issued already in 2005 Lehman’s paper was still “A” rated by S&P 15 days Lehman’s paper was still “A” rated by S&P 15 days before filing for bankruptcy before filing for bankruptcy Beyond regulations, we need to enhance our knowledge of the risks, the understanding of the impacts they have in our enterprise and take necessary actions. Beyond regulations, we need to enhance our knowledge of the risks, the understanding of the impacts they have in our enterprise and take necessary actions. Having said the above, my paper will focus to Having said the above, my paper will focus to some extent on the regulatory aspects some extent on the regulatory aspects WHAT A CRISIS 37 th AIO Conference 23 – 26 May, 2010 Banjul, Gambia

 maintain efficient and stable insurance markets  fair and safe market for profitable insurance business transactions  Provide adequate protection for the consumers at reasonable cost  maintain efficient and stable insurance markets  fair and safe market for profitable insurance business transactions  Provide adequate protection for the consumers at reasonable cost 13 In a recent survey of the South African Insurance market by Pricewaterhouse Coopers Inc,it was concluded from responses of the 27 Companies surveyed that regulations have created a fairer playing-field for institutions to reach their growth targets. The key objectives of Insurance regulation include the following 37 th AIO Conference 23 – 26 May, 2010 Banjul, Gambia

THE AFRICAN INSURANCE ENVIRONMENT IN PERSPECTIVE The African continent is characterized by The African continent is characterized by  high level of illiteracy,  high rural population,  poor infrastructure,  poverty etc The African insurance markets comprise of The African insurance markets comprise of  Insurers (Underwriters),  Reinsurers, Brokers,  Loss Adjusters,  Actuaries and  Agents. The African continent is characterized by The African continent is characterized by  high level of illiteracy,  high rural population,  poor infrastructure,  poverty etc The African insurance markets comprise of The African insurance markets comprise of  Insurers (Underwriters),  Reinsurers, Brokers,  Loss Adjusters,  Actuaries and  Agents th AIO Conference 23 – 26 May, 2010 Banjul, Gambia

THE AFRICAN INSURANCE ENVIRONMENT IN PERSPECTIVE …. Contd. There are risks of potential abuse There are risks of potential abuse Low level awareness Low level awareness Poor market penetration Poor market penetration Low operating capital Low operating capital Low capacity for retention and acceptance of foreign risks Low capacity for retention and acceptance of foreign risks 37 th AIO Conference 23 – 26 May, 2010 Banjul, Gambia

Low Insurance penetration – for eg. In India Source: Asia Insurance Review 37 th AIO Conference 23 – 26 May, 2010 Banjul, Gambia

What are the Indian regulators doing about it? Source: Asia Insurance Review 37 th AIO Conference 23 – 26 May, 2010 Banjul, Gambia

Insurance regulation simply connote laws, rules or guidelines through which governments controls the practice of insurance business. Insurance regulation simply connote laws, rules or guidelines through which governments controls the practice of insurance business. Regulation of insurance in Africa is mainly through various domestic legislations creating regulatory authorities/agencies to superintend insurance businesses. For example, Regulation of insurance in Africa is mainly through various domestic legislations creating regulatory authorities/agencies to superintend insurance businesses. For example, Nigeria National Insurance Commission, Nigeria National Insurance Commission, South Africa, the Financial Services Board; South Africa, the Financial Services Board; Zambia here we have Pension and Insurance Authority; etc. Zambia here we have Pension and Insurance Authority; etc. The common denominator of all these institutions is that they were established by the Governments of the domestic markets. Insurance regulation simply connote laws, rules or guidelines through which governments controls the practice of insurance business. Insurance regulation simply connote laws, rules or guidelines through which governments controls the practice of insurance business. Regulation of insurance in Africa is mainly through various domestic legislations creating regulatory authorities/agencies to superintend insurance businesses. For example, Regulation of insurance in Africa is mainly through various domestic legislations creating regulatory authorities/agencies to superintend insurance businesses. For example, Nigeria National Insurance Commission, Nigeria National Insurance Commission, South Africa, the Financial Services Board; South Africa, the Financial Services Board; Zambia here we have Pension and Insurance Authority; etc. Zambia here we have Pension and Insurance Authority; etc. The common denominator of all these institutions is that they were established by the Governments of the domestic markets th AIO Conference 23 – 26 May, 2010 Banjul, Gambia

DEVELOPMENTS IN THE NIGERIAN INSURANCE MARKET The National Insurance Commission of Nigeria, for example is repositioning itself to meet the regulatory challenges. Some of the strategic initiatives embarked on include: The National Insurance Commission of Nigeria, for example is repositioning itself to meet the regulatory challenges. Some of the strategic initiatives embarked on include: Internal re-engineering of operations, Internal re-engineering of operations, acquisition and deployment of efficient Information technology infrastructure acquisition and deployment of efficient Information technology infrastructure Review of its organizational structure for effectiveness, Review of its organizational structure for effectiveness, enhanced human resources management and enhanced human resources management and training program. The National Insurance Commission of Nigeria, for example is repositioning itself to meet the regulatory challenges. Some of the strategic initiatives embarked on include: The National Insurance Commission of Nigeria, for example is repositioning itself to meet the regulatory challenges. Some of the strategic initiatives embarked on include: Internal re-engineering of operations, Internal re-engineering of operations, acquisition and deployment of efficient Information technology infrastructure acquisition and deployment of efficient Information technology infrastructure Review of its organizational structure for effectiveness, Review of its organizational structure for effectiveness, enhanced human resources management and enhanced human resources management and training program th AIO Conference 23 – 26 May, 2010 Banjul, Gambia

These reflect both the need to address particular problems and possible abuses in the business, as well as ensure the development of insurance market. The key objectives of government interest in the regulation of insurance industry include: Protect consumers of insurance products Protect consumers of insurance products Ensure solvency is maintained Ensure solvency is maintained Reasonable rates are charged Reasonable rates are charged Insurance covers are available Insurance covers are available Standardize the conduct of insurance business Standardize the conduct of insurance business Regulation of entry Regulation of entry Supervision of conduct Supervision of conduct Ethical conducts of business Ethical conducts of business Establish sound financial system Establish sound financial system Enhance healthy competition Enhance healthy competition Transparency Transparency Free flow of information Free flow of information These reflect both the need to address particular problems and possible abuses in the business, as well as ensure the development of insurance market. The key objectives of government interest in the regulation of insurance industry include: Protect consumers of insurance products Protect consumers of insurance products Ensure solvency is maintained Ensure solvency is maintained Reasonable rates are charged Reasonable rates are charged Insurance covers are available Insurance covers are available Standardize the conduct of insurance business Standardize the conduct of insurance business Regulation of entry Regulation of entry Supervision of conduct Supervision of conduct Ethical conducts of business Ethical conducts of business Establish sound financial system Establish sound financial system Enhance healthy competition Enhance healthy competition Transparency Transparency Free flow of information Free flow of information th AIO Conference 23 – 26 May, 2010 Banjul, Gambia

The establishment of regulatory and supervisory institution as part of the bureaucratic structure is on the decline The establishment of regulatory and supervisory institution as part of the bureaucratic structure is on the decline There is the growing acceptance by African countries of the need for the regulation and supervision of insurance activities through a separate structure outside the core government ministries There is the growing acceptance by African countries of the need for the regulation and supervision of insurance activities through a separate structure outside the core government ministries These development will no doubt enhance effective supervision/regulation. These development will no doubt enhance effective supervision/regulation. The establishment of regulatory and supervisory institution as part of the bureaucratic structure is on the decline The establishment of regulatory and supervisory institution as part of the bureaucratic structure is on the decline There is the growing acceptance by African countries of the need for the regulation and supervision of insurance activities through a separate structure outside the core government ministries There is the growing acceptance by African countries of the need for the regulation and supervision of insurance activities through a separate structure outside the core government ministries These development will no doubt enhance effective supervision/regulation. These development will no doubt enhance effective supervision/regulation th AIO Conference 23 – 26 May, 2010 Banjul, Gambia

REGULATORY MODEL Insurance regulation in Africa is largely compliance based Insurance regulation in Africa is largely compliance based ‘ one cap fits all’ approach predominates. ‘ one cap fits all’ approach predominates. same set of rules applied to all same set of rules applied to all No cognizance for the risk profile. No cognizance for the risk profile. This model is costly in terms of: This model is costly in terms of: finance, finance, manpower and manpower and time time Added to the cost element is the loss of required effectiveness. Added to the cost element is the loss of required effectiveness. Insurance regulation in Africa is largely compliance based Insurance regulation in Africa is largely compliance based ‘ one cap fits all’ approach predominates. ‘ one cap fits all’ approach predominates. same set of rules applied to all same set of rules applied to all No cognizance for the risk profile. No cognizance for the risk profile. This model is costly in terms of: This model is costly in terms of: finance, finance, manpower and manpower and time time Added to the cost element is the loss of required effectiveness. Added to the cost element is the loss of required effectiveness th AIO Conference 23 – 26 May, 2010 Banjul, Gambia

STATE OF THE AFRICAN INSURANCE MARKET - “Raise the Bar” Capital inadequacy resulting in low retentions and high demand for reinsurance. Capital inadequacy resulting in low retentions and high demand for reinsurance. Currently there are rising demands for more sophisticated covers requiring better capitalized companies Currently there are rising demands for more sophisticated covers requiring better capitalized companies As a fall out some countries are beginning to embrace recapitalization, Mergers and Acquisitions (e.g Ghana, Nigeria, Gambia, Kenya to name a few) As a fall out some countries are beginning to embrace recapitalization, Mergers and Acquisitions (e.g Ghana, Nigeria, Gambia, Kenya to name a few) Lack of capacity and underwriting expertise to underwrite some classes of business e.g. Oil and Gas Risks, Lack of capacity and underwriting expertise to underwrite some classes of business e.g. Oil and Gas Risks, Aviation and other specialized lines of business Aviation and other specialized lines of business 37 th AIO Conference 23 – 26 May, 2010 Banjul, Gambia

Globalization & Competition from foreign companies Globalization & Competition from foreign companies Basic insurance and reinsurance products on offer. Basic insurance and reinsurance products on offer. Lack of customized insurance solutions to suit local requirements. Lack of customized insurance solutions to suit local requirements. Weak and unsophisticated supervision (environment for unethical practices to thrive) Weak and unsophisticated supervision (environment for unethical practices to thrive) Many African Countries have weak economies with resultant low Insurance penetration due to lack of disposable income, ignorance and inertia. Many African Countries have weak economies with resultant low Insurance penetration due to lack of disposable income, ignorance and inertia. STATE OF THE AFRICAN INSURANCE MARKET 37 th AIO Conference 23 – 26 May, 2010 Banjul, Gambia

STATE OF THE AFRICAN INSURANCE MARKET Generally the risks of the continent are good but portfolios are largely unbalanced Generally the risks of the continent are good but portfolios are largely unbalanced Inadequate pricing; Inadequate pricing; Companies compete on price not on service Companies compete on price not on service The net effect is rate cutting which is now widespread The net effect is rate cutting which is now widespread Companies are beginning to embrace ICT in service delivery Companies are beginning to embrace ICT in service delivery ART & Financial Reinsurances not widely practiced but may be the case with globalization and maturing economies ART & Financial Reinsurances not widely practiced but may be the case with globalization and maturing economies Reinsurance demands for non-sophisticated International reinsurers provide basic covers, capacities and dictate price. Consequently, African insurers are paying prices disproportionate to their experience Reinsurance demands for non-sophisticated International reinsurers provide basic covers, capacities and dictate price. Consequently, African insurers are paying prices disproportionate to their experience African insurance companies end up paying higher price for their Reinsurance requirements even when markets were considered soft. African insurance companies end up paying higher price for their Reinsurance requirements even when markets were considered soft. 37 th AIO Conference 23 – 26 May, 2010 Banjul, Gambia

Primary Insurance: Low per-capita income and market penetration Per-capita income (2006, US$) Insurance market penetration (2006, in %)  In sum, catch-up potential for insurance clearly visible – together with high real GDP growth, this leads to expected strong insurance premium growth Penetration much lower if South Africa is excluded (NL: 0.82, L: 0.33) Source: Munich Re The African Insurance Industry – Conditions & Market practice 37 th AIO Conference 23 – 26 May, 2010 Banjul, Gambia

TREND DRIVERS Change Drivers that have significantly impacted on current global insurance and reinsurance business cycle includes; Terrorism: September 11 marked a watershed in the history of insurance – Led to the shortage of supply Reinsurance and the need for appropriate pricing Terrorism: September 11 marked a watershed in the history of insurance – Led to the shortage of supply Reinsurance and the need for appropriate pricing Escalating CAT Losses from Natural Catastrophes all over the world Escalating CAT Losses from Natural Catastrophes all over the world Globalization Globalization Information Technology Information Technology Improved Risk Management and Governance Practices Improved Risk Management and Governance Practices ART & Financial Reinsurance ART & Financial Reinsurance Credit & Capital market Crisis Credit & Capital market Crisis Commitment of IAIS to significant improvement in quality of supervision. Commitment of IAIS to significant improvement in quality of supervision. 37 th AIO Conference 23 – 26 May, 2010 Banjul, Gambia

CHALLENGES OF INSURANCE REGULATION – “Bumpy Ride” The African Insurance Market has grown in the last decades The African Insurance Market has grown in the last decades There has been substantial increase in the number of players and activities There has been substantial increase in the number of players and activities The world financial system has been liberalized with national boundaries broken The world financial system has been liberalized with national boundaries broken Communication and Information Technology has changed the business landscape Communication and Information Technology has changed the business landscape These developments have all combined to pose regulatory challenges to our various country regulators. These developments have all combined to pose regulatory challenges to our various country regulators. The African Insurance Market has grown in the last decades The African Insurance Market has grown in the last decades There has been substantial increase in the number of players and activities There has been substantial increase in the number of players and activities The world financial system has been liberalized with national boundaries broken The world financial system has been liberalized with national boundaries broken Communication and Information Technology has changed the business landscape Communication and Information Technology has changed the business landscape These developments have all combined to pose regulatory challenges to our various country regulators. These developments have all combined to pose regulatory challenges to our various country regulators th AIO Conference 23 – 26 May, 2010 Banjul, Gambia

CHALLENGES OF INSURANCE REGULATION cont’d Absence of reliable data for effective supervision Absence of reliable data for effective supervision Poor public perception of insurance Poor public perception of insurance Inefficient financial market needed to galvanize reliable investment returns Inefficient financial market needed to galvanize reliable investment returns Slow process of law making Slow process of law making Judicial system and enforcement of the laws Judicial system and enforcement of the laws Inadequate human capital Inadequate human capital Low level of technological infrastructure Low level of technological infrastructure Absence of reliable data for effective supervision Absence of reliable data for effective supervision Poor public perception of insurance Poor public perception of insurance Inefficient financial market needed to galvanize reliable investment returns Inefficient financial market needed to galvanize reliable investment returns Slow process of law making Slow process of law making Judicial system and enforcement of the laws Judicial system and enforcement of the laws Inadequate human capital Inadequate human capital Low level of technological infrastructure Low level of technological infrastructure th AIO Conference 23 – 26 May, 2010 Banjul, Gambia

CHALLENGES OF INSURANCE REGULATION cont’d Ineffective legal frame work Ineffective legal frame work Lack of adequate funding for effective regulation Lack of adequate funding for effective regulation Emerging trend of group structure Emerging trend of group structure Cross border transactions by regulated entities Cross border transactions by regulated entities Inadequate cooperation by the regional and continental regulatory bodies Inadequate cooperation by the regional and continental regulatory bodies Prescriptive capital requirement Prescriptive capital requirement Disconnect between product and consumer needs Disconnect between product and consumer needs Lack of independence of regulatory Lack of independence of regulatory institutions institutions Ineffective legal frame work Ineffective legal frame work Lack of adequate funding for effective regulation Lack of adequate funding for effective regulation Emerging trend of group structure Emerging trend of group structure Cross border transactions by regulated entities Cross border transactions by regulated entities Inadequate cooperation by the regional and continental regulatory bodies Inadequate cooperation by the regional and continental regulatory bodies Prescriptive capital requirement Prescriptive capital requirement Disconnect between product and consumer needs Disconnect between product and consumer needs Lack of independence of regulatory Lack of independence of regulatory institutions institutions th AIO Conference 23 – 26 May, 2010 Banjul, Gambia

WAY FORWARD – “Take the Right Step” Migration from compliance to risk based model of supervision Migration from compliance to risk based model of supervision Migration from prescriptive capital requirement to minimum capital determination based on risk profile. Migration from prescriptive capital requirement to minimum capital determination based on risk profile. Massive investment in creation of public image through well crafted public relation strategy Massive investment in creation of public image through well crafted public relation strategy Redesign human capital development plan Redesign human capital development plan Migration from compliance to risk based model of supervision Migration from compliance to risk based model of supervision Migration from prescriptive capital requirement to minimum capital determination based on risk profile. Migration from prescriptive capital requirement to minimum capital determination based on risk profile. Massive investment in creation of public image through well crafted public relation strategy Massive investment in creation of public image through well crafted public relation strategy Redesign human capital development plan Redesign human capital development plan th AIO Conference 23 – 26 May, 2010 Banjul, Gambia

Increase investment in technology Increase investment in technology Adequate funding of the regulatory system Adequate funding of the regulatory system Reform of insurance legal framework Reform of insurance legal framework Regionalization and expansion of regulatory cooperation including forging overseas alliances Regionalization and expansion of regulatory cooperation including forging overseas alliances Reinvigoration of African Insurance Supervisor Association (AISA) Reinvigoration of African Insurance Supervisor Association (AISA) Way forward… contd. 37 th AIO Conference 23 – 26 May, 2010 Banjul, Gambia

Rate of change at the global market place is assuming a dizzying pace and I believe that recent and not too recent happenings will have a lot of impact on our industry and the way we do business. Rate of change at the global market place is assuming a dizzying pace and I believe that recent and not too recent happenings will have a lot of impact on our industry and the way we do business. The African Insurance and reinsurance industry being a part of the global market place is going to be affected by what is going on in the global insurance industry The African Insurance and reinsurance industry being a part of the global market place is going to be affected by what is going on in the global insurance industry My mandate is to look at trends in the insurance Industry from an African Broker’s viewpoint. My mandate is to look at trends in the insurance Industry from an African Broker’s viewpoint. 37 th AIO Conference 23 – 26 May, 2010 Banjul, Gambia

In looking at the trends, this paper will highlight some major events responsible for observable trends in the global reinsurance industry and their implications. In looking at the trends, this paper will highlight some major events responsible for observable trends in the global reinsurance industry and their implications. My conclusions and some recommendations will follow. My conclusions and some recommendations will follow. 37 th AIO Conference 23 – 26 May, 2010 Banjul, Gambia

KEY CONCERNS AS REINSURANCE BROKERS As a reinsurance broker, part of our overriding concern is finding the right reinsurance protection for our client at the right price As a reinsurance broker, part of our overriding concern is finding the right reinsurance protection for our client at the right price In this regard our interest in the reinsurance value chain will include In this regard our interest in the reinsurance value chain will include Profile and quality of risks our clients bring to the market Profile and quality of risks our clients bring to the market Their retention ratios Their retention ratios The capacity available in the market to meet our clients needs The capacity available in the market to meet our clients needs The terms under which Cover is granted to our clients The terms under which Cover is granted to our clients 37 th AIO Conference 23 – 26 May, 2010 Banjul, Gambia

KEY CONCERNS AS REINSURANCE BROKERS Contd… Improvement in client service The timeliness and quality of claims settlement Growth of the market Impact of supervision on business practices Risk management practices by reinsurers 37 th AIO Conference 23 – 26 May, 2010 Banjul, Gambia

GLOBAL TRENDS Most players deploy IT in service delivery. International Reinsurers are deploying rating tools in pricing. The unrelenting Credit and Capital Market Crisis is going to impact on insurance and reinsurance business in many ways. Some possible scenarios are examined below: Anticipated decrease in the capital base of reinsurance companies worldwide. Decreasing capital base likely to result in the reduction in reinsurance capacity (supply) Reduction on refinancing options available to primary insurers may stimulate the demand for reinsurance 37 th AIO Conference 23 – 26 May, 2010 Banjul, Gambia

Lower capital market returns and decrease in investment incomes for companies Decrease in profitability for reinsurers For Africa any further economic crisis will likely impact insurance penetration already the world lowest Increased exposures from natural hazards likely to result in significant increases in individual and catastrophe losses The above events are likely to result in increase in pricing of insurance/reinsurance products Continuous improvement in supervisory oversight as a result of national development initiatives and the requirement of IAIS. GLOBAL TRENDS 37 th AIO Conference 23 – 26 May, 2010 Banjul, Gambia

Source: Munich Re DECREASE IN CAPITAL BASE OF REINSURANCE COMPANIES WORDWIDE 37 th AIO Conference 23 – 26 May, 2010 Banjul, Gambia

Increased exposures from natural hazards and increased Catastrophe Losses Source: Munich Re 37 th AIO Conference 23 – 26 May, 2010 Banjul, Gambia

At the Reinsurance Rendezvous held in Monte Carlo in September last year, the practitioners were unanimous in their conclusion that; The reinsurance industry has weathered the credit crisis through their excellent risk management procedure The reinsurance industry has weathered the credit crisis through their excellent risk management procedure Reinsurers have managed the business cycle excellently over time, since 2001 Reinsurers have managed the business cycle excellently over time, since 2001 They also agreed that rates will continue to decline in spite of global losses and it is likely to take a ceded insured loss of about USD15 billion to USD20 billion to stabilize that softening, and a ceded loss of about USD40 billion to USD50 billion to cause a material upward change in rates – Mr. Erhart (Aon Re Executive) They also agreed that rates will continue to decline in spite of global losses and it is likely to take a ceded insured loss of about USD15 billion to USD20 billion to stabilize that softening, and a ceded loss of about USD40 billion to USD50 billion to cause a material upward change in rates – Mr. Erhart (Aon Re Executive) 37 th AIO Conference 23 – 26 May, 2010 Banjul, Gambia

CONCLUSION & RECOMMENDATIONS African Reinsurers must put their acts together and; Recapitalize adequately to enable them play a primary role in providing capacity for the African continent. Recapitalize adequately to enable them play a primary role in providing capacity for the African continent. Improve on their fundamentals and get rated by appropriate rating agencies Improve on their fundamentals and get rated by appropriate rating agencies Invest heavily in human capital development, especially in the area of specialized risks e.g. Oil & Energy, Aviation Invest heavily in human capital development, especially in the area of specialized risks e.g. Oil & Energy, Aviation Invest in the development of customized reinsurance solutions Invest in the development of customized reinsurance solutions Embrace ICT to upgrade their service delivery to their markets Embrace ICT to upgrade their service delivery to their markets Improve in training for direct underwriters. Improve in training for direct underwriters. 37 th AIO Conference 23 – 26 May, 2010 Banjul, Gambia

International Reinsurers should Apply differential pricing (taking into consideration the differences in exposure and experience in pricing covers) – No continent should subsidize losses from other region Apply differential pricing (taking into consideration the differences in exposure and experience in pricing covers) – No continent should subsidize losses from other region Play a complementary role in the continent and contribute their to developing the African insurance markets Play a complementary role in the continent and contribute their to developing the African insurance markets Direct underwriters should; Recapitalize to retain more and only buy reinsurance at the top levels Recapitalize to retain more and only buy reinsurance at the top levels Embrace ICT in service delivery Embrace ICT in service delivery Improve on Risk Management and Corporate Governance Improve on Risk Management and Corporate Governance Embark on cost optimization through Embark on cost optimization through Reduce cost of doing business Reduce cost of doing business Make each line of business pay for itself Make each line of business pay for itself CONCLUSION & RECOMMENDATIONS 37 th AIO Conference 23 – 26 May, 2010 Banjul, Gambia

Regulatory Authorities; Regulatory Authorities; Create enabling environment for insurance companies to grow and develop Create enabling environment for insurance companies to grow and develop Encourage companies to explore other methods of Risk financing other than the traditional Reinsurance Encourage companies to explore other methods of Risk financing other than the traditional Reinsurance CONCLUSION & RECOMMENDATIONS 37 th AIO Conference 23 – 26 May, 2010 Banjul, Gambia

Considering all foretold The African Reinsurance Industry would not Generally expect an increase in rates for Rather will expect each market to be rated, taking into account their exposure and experiences Considering all foretold The African Reinsurance Industry would not Generally expect an increase in rates for Rather will expect each market to be rated, taking into account their exposure and experiences CONCLUSION & RECOMMENDATIONS 37 th AIO Conference 23 – 26 May, 2010 Banjul, Gambia

FOOD FOR THOUGHT 37 th AIO Conference 23 – 26 May, 2010 Banjul, Gambia

THANK YOU FOR YOUR ATTENTION 37 th AIO Conference 23 – 26 May, 2010 Banjul, Gambia