Evolution in Government Supervision of the General Insurance Industry

Transcription

1 Evolution in Government Supervision of the General Insurance Industry PNG Insurance Director Forum October 2013 Mark Hurst

2 Contents Overview of PNG Industry Evolution of Government Supervision Supervision The Detail Future Challenges for the Industry 2

3 PNG General Insurance Market 12 Insurers 1 Reinsurer 6 Brokers + 1 R/I broker 5 Loss adjusters Gross premium of K380 for 2011 with strong growth 20% Property / Fire 20% Motor 12% CTP Loss ratios around 20% - 40% for most classes 3

4 Insurers Capital General (L) National Teachers (L) Century Insurance (F) Pacific Assurance Group (L) Chartis (F) Pacific MMI (L) Croesus (L) QBE Insurance (F) Inspac (L) Southern Cross (L) MVIL (L) Tower Insurance (F) Reinsurer Pacific Re (L) 4

5 Kina million Insurance Commissioner Statistics Gross Written Premium K273 mil K339 mil K383 mil

6 Kina million Insurance Commissioner Statistics Cost of claims K77 mil K92 mil K60 mil

7 Insurance Commissioner Statistics 120% 100% 80% 60% 40% 20% 0% -20% -40% Loss ratios % % % mil

8 Kina million Insurance Commissioner Statistics Underwriting profit K36 mil K18 mil K93 mil

9 Key Messages The PNG Insurance market is growing strongly with potential for future growth. Profitable industry with low loss ratios. Directors should be aware of their own insurers performance and reasons for differences with the market.

10 Contents Overview of PNG Industry Evolution of Government Supervision Supervision The Detail Future Challenges for the Industry 10

11 Evolution of Government Supervision General Insurance Industry 1970s 1990s 2000s Today Motor Vehicle (Third Party Ins) Act 1974 Insurance Corporation Act 1977 Workers Comp Act 1978 Workers Comp (Amendment) Act 1990 Investment Authority Act 1992 Insurance Act 1995 Companies Act 1997 Banks & Financial Institutions Act ICCC established Actuarial valuations for MVIL ICCC review of GI Industry Risk Based Capital framework More insurers getting actuarial valuations Some get Financial Condition Reports Insurance Commissioner on-site visits commence Reinsurance directive from Commissioner Insurance Act is currently under review 11

12 Key Message There is a lot of legislation to consider. Some more relevant to Directors than others. This is a global trend and there is more to come!

13 Contents Overview of PNG Industry Evolution of Government Supervision Supervision The Detail Future Challenges for the Industry 13

14 General Insurance Supervision Office of the Insurance commissioner (OIC) Regulator for general insurance industry Administers Insurance Act 1995 Issues licences to insurers and reinsurers Recently increased activity Onsite visits FCRs Reinsurance directive 14 Independent Consumer & Competition Commission (ICCC) Regulates prices for some goods & services Regulates premiums for CTP (MVIL) Office of Workers Compensation Approves workers compensation payments Closure of claims

15 Insurance Act 1995: Key Features Covers licensing of insurers (both initial and ongoing) All risks situated in PNG are to be insured with PNG licensed insurers Insurers must offer all outwards treaty reinsurance and facultative risks to local reinsurer Sets out powers of inspection and investigation OIC can order insurers to get Financial Condition Report by an actuary 15

16 ICCC Review of General Industry Key Findings Insurance Act 1995 is broad in scope, lacks clarity and needs more regulations to provide guidance to the regulator Comparison to best practice regulation implies that redrafting of the legislation is required Industry profitable and relatively efficient Competition increasing with further scope for growth Key Recommendations Comprehensive examination of the existing industry legislation be undertaken Redrafting of the legislative, regulatory and governance frameworks be undertaken as soon as possible 16

17 Risk Based Capital (RBC) framework Risk Based Capital Component: Charge Factor Amount held (K mil) Capital (K mil) 1) Unearned premium risk charge 22.5% ) Claim liabilities risk charge 15.0% Long tail classes have higher charges than short tail classes 3) Excessive Exposure Risk Charge 0.5 Depends on largest risk retention 4) Asset risk charge - equities 8.0% government bonds 0.5% Riskier assets (eg. equities,property) have higher charges than lower risk assets Total Risk Based Capital 10.0 Sum of all the charges above Actual Captital held (Assets - Liabilities) 18.0 Balance Sheet Items Capital "Buffer" 8.0 Margin over requirement 80% Greater than 0%, then solvent 17

18 Risk Based Capital (RBC) framework Strengths Minimum capital is based on the most of the risks of the company Relatively simple Potential issues Inputs may be inconsistent between insurers Amount of capital held only has to be 100% of minimum no buffer Could be a lot more risk sensitive e.g doesn t explicitly take into account exposure to catastrophes 18

19 Investment Guidelines Investment guidelines for insurers: Insurance Commissioner Investment Thresholds Security Proportion of Total Assets Government Securities 15% - 25% Term Deposits 55% - 65% Commercial Equities 15% - 25% Property 0% - 15% Long-Term Loans/ Debentures 5% - 15% 19

20 Key Message Supervision of the industry could be viewed as being successful in that no recent insolvencies and industry competitive and profitable. However, is it time to update some aspects of the insurance framework? How resilient is the industry?

21 Contents Overview of PNG Industry Evolution of Government Supervision Supervision The Detail Future Challenges for the Industry 21

22 Strengths of Industry Competitive Profitable High growth Local insurer presence Becoming more sophisticated More Papua New Guineans buying insurance Some very good people Increased use of actuaries 22

23 Future challenges Licensing / compliance Insurance statistics Increased competition Enough capital to coping with growth / catastrophes Capital Legislation 23

24 Key Message There has been increased supervision activity in recent years but few major changes. Pressure on all countries to make supervision more consistent.

25 Distribution & Use Reliances & Limitations This presentation has been prepared for the PNG Director Forum, held on 16 October It is not intended, nor necessarily suitable, for any other purpose. Third parties should recognise that the furnishing of this presentation is not a substitute for their own due diligence and should place no reliance on this presentation or the data contained herein which would result in the creation of any duty or liability by Finity to the third party. Finity wishes it to be understood that the information presented at the Forum is of a general nature and does not constitute actuarial advice or investment advice. While Finity has taken reasonable care in compiling the information presented, Finity does not warrant that the information provided is relevant to a particular reader s situation, specific objectives or needs. Finity does not have any responsibility to any attendee at the Forum or to any other party arising from the content of this presentation. Before acting on any information provided by Finity in this presentation, readers should consider their own circumstances and their need for advice on the subject Finity would be pleased to assist.

26 Contact Mark Hurst Consultant Tel: Mobile: +61 [0]