Evolution in Government Supervision of the General Insurance Industry PNG Insurance Director Forum October 2013 Mark Hurst
Contents Overview of PNG Industry Evolution of Government Supervision Supervision The Detail Future Challenges for the Industry 2
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
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
Kina million Insurance Commissioner Statistics 90 80 70 60 50 40 30 20 10 0 Gross Written Premium 2009 - K273 mil 2010 - K339 mil 2011 - K383 mil 5 2009 2010 2011
Kina million Insurance Commissioner Statistics 35 30 25 20 15 10 5 0-5 -10-15 Cost of claims 2009 - K77 mil 2010 - K92 mil 2011 - K60 mil 6 2009 2010 2011
Insurance Commissioner Statistics 120% 100% 80% 60% 40% 20% 0% -20% -40% Loss ratios 2009-42% 2010-44% 2011-24% mil 7 2009 2010 2011
Kina million Insurance Commissioner Statistics 40 30 20 Underwriting profit 2009 - K36 mil 2010 - K18 mil 2011 - K93 mil 10 0-10 -20 8 2009 2010 2011
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.
Contents Overview of PNG Industry Evolution of Government Supervision Supervision The Detail Future Challenges for the Industry 10
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 2000 2002 ICCC established 2004 - Actuarial valuations for MVIL 2007 - ICCC review of GI Industry 2009 - 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
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!
Contents Overview of PNG Industry Evolution of Government Supervision Supervision The Detail Future Challenges for the Industry 13
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
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
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
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% 10 2.3 2) Claim liabilities risk charge 15.0% 25 3.8 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% 39 3.1 - government bonds 0.5% 85 0.4 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
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
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
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?
Contents Overview of PNG Industry Evolution of Government Supervision Supervision The Detail Future Challenges for the Industry 21
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
Future challenges Licensing / compliance Insurance statistics Increased competition Enough capital to coping with growth / catastrophes Capital Legislation 23
Key Message There has been increased supervision activity in recent years but few major changes. Pressure on all countries to make supervision more consistent.
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Contact Mark Hurst Consultant Tel: +61 2 8252 3358 Mobile: +61 [0] 402 425 462 www.finity.com.au 26