Insurance facts and figures - PricewaterhouseCoopers China

Transcription

Introduction
Asia is an exciting growth story in the global economy and as businesses and economies grow across the region,
insurance needs to grow too. This creates opportunities for insurers in their local markets and also beyond their
borders. Increasingly as markets evolve, it is just as important to have a regional view as well as local when
pursuing opportunities for profitable growth.
PwC has a leading network of insurance experts across the Asian region that work together to bring the benefits
of this expertise when serving clients in a territory or across borders in the Asian region. We trust you find this
overview of key Asian insurance industries of value, and would be delighted to discuss the following topic with
you: "what you would like to grow in the Asian region?"
Best wishes
Scott Fergusson
Editor & PwC Insurance Leader – Australia
Simon Copley
PwC Insurance Leader – Asia Pacific
Please scan QR code from your iPad to download the FS Connect app.
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Legislative and regulatory framework
The insurance industry provides general and life
insurance to Australian individuals, households and
businesses. General insurance companies must be
registered under the Insurance Act 1973 and life
insurance companies under the Life Insurance Act 1995
to carry on business in Australia. The applicable Act also
dictates strict capital adequacy requirements to ensure
insurers continue as a going concern. Government
owned insurance writers also operate under specific
Acts of Parliament.
The Australian Securities and Investments Commission
(ASIC) is another key regulator responsible for market
integrity and consumer protection functions across the
financial system. The Corporations Act 2001 requires all
sellers of insurance products to retail clients, including
registered insurers and brokers, to obtain an Australian
Financial Services Licence (AFSL). Insurers that are
regulated by APRA are exempt from the financial
obligations of an AFSL as their financial position is
separately monitored by APRA.
The Australian Prudential Regulation Authority (APRA)
is the Commonwealth authority responsible for licensing
and prudential regulation of all deposit-taking
institutions, life and general insurance companies,
superannuation funds and friendly societies. APRA
supervises the industry through legally binding
prudential standards and prescribed reporting to ensure
the relevant insurance act is complied with. The
standards cover topics such as risk management,
reinsurance, business continuity, governance, fit and
proper and outsourcing.
Australia
4
Financial reporting, capital
and taxation
Financial reporting
requirements
For the purposes of financial reporting, Australian
insurers apply AASB 4 Insurance Contracts, the local
equivalent of IFRS 4, which references two Australian
Accounting Standards that prescribe recognition and
measurement for insurance contracts. The Australian
Accounting Standard specifically relevant to general
insurers is AASB 1023 Financial Reporting for General
Insurance Activities. This standard guides the accounting
for the general insurance activities, including accounting
for the investments. The general principles of AASB 1023
including earning premium in line with the pattern of
risk, valuing claim reserves on a best estimate plus a risk
margin basis, and applying fair value accounting where
possible to other balances relating to the insurance
contracts, for example assets backing the insurance
liabilities. Life insurers follow AASB 1038 Life Insurance
Business, which incorporates the reporting of premiums
and claims, asset valuation and assets and liabilities.
The key element of AASB 1038 is the requirement to
release profit and value policy liabilities using a Margin
on Services basis, whereby profit is released in line with
the provision of service over the life of the insurance
contract.
Capital regime and
requirements
APRA’s life and general insurance capital standards
(LAGIC) review has culminated in the implementation
of new capital adequacy standards effective 1 January
2013. The main objectives of the LAGIC review was to:
 improve the risk-sensitivity and appropriateness of
the capital standards in general and life insurance
 where appropriate, improve the alignment of the
capital standards across industries.
The LAGIC capital adequacy framework is based on a
three-pillar approach similar to capital requirements in
Solvency II for insurers in Europe:
 Pillar 1: Quantitative requirement for the calculation
of a Prudential Capital Requirement (PCR) and the
recognition of an eligible capital base to meet this
requirement. The prescribed capital amount is based
on the following capital risks: asset risk, asset
concentration risk, insurance risk, insurance
concentration risk, operational risk and
aggregation risk
 Pillar 2: Adequate system of governance including an
effective risk management system and prospective
risk identification through the Internal Capital
Adequacy Assessment Process (ICAAP) which is
owned by the Board and implemented by
management. The Board is responsible for ensuring
adequate capital given the scale, nature and
complexity of an insurers business and risk profile
 Pillar 3: Reporting and disclosure requirements
including private reporting to APRA (“ICAAP
Report”), management and public reporting.
Taxation
Australian insurance companies are assessed under
Division 320 and 321 of the Income Tax Assessment Act
(ITAA) 1936. Tax is payable on the profits of a general
insurer (if subject to tax) at the corporate tax rate,
currently 30 per cent. Insurers are also required to
account for GST of one-eleventh of the premium income
collected (excluding stamp duty). The GST classification
of general insurance will be different if a supply is made
in relation to a risk located outside of Australia, in which
case the supply of these policies may be GST-free (known
as “zero rated supplies” in other jurisdictions). The GST
legislation contains complex provisions in respect of
general insurance businesses. Other taxes and levies
include stamp duty, fire services levy, insurance
protection tax, general insurance levy and life insurance
riders which are typically state based taxes with differing
rates by state.
Life company tax is more complicated with different rates
of tax applicable to life risk business (corporate tax rate
of 30%), superannuation business (15%), or exempt
classes (eg annuities at 0%).
Australia
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Products and the market
Products
The Australian general insurance sector (property and
casualty) offers a full range of risk products and services
to Australian households and businesses. Some of the
more significant products include employer’s liability,
fire and industrial special risk (ISR), home
owners/household, motor vehicle, professional
indemnity, public and product liability, travel and
lenders mortgage insurance. These products and
services are distributed via brokers and agents, insurance
companies, banks and the internet. In recent years there
has been a trend towards direct selling as insurers focus
on managing costs and look for ways to respond to more
digitally aware customers.
Compulsory Third Party and workers compensation are
statutory classes of insurance that are administrated
separately by each state of Australia.
The majority of life insurance products currently sold by
Australian life insurers include individual and group life,
income protection and trauma risk business. Some life
insurers continue to administer large back books of
traditional endowment style life products however these
are rarely sold in today’s market. Life insurers also offer
superannuation, retirement and investment
style products.
Headline market statistics and commentary
Australia
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Drivers
General Insurance
Life Insurance
 Fall in investment income resulting from the global
financial crisis, and its aftermath. Financial markets
in Australia did not rebound quite as quickly or as
sharply as was anticipated. Widespread economic
uncertainty and volatility continues.
 Uncertain investment conditions influenced by
challenges in parts of the global economy, and
consequential subdued consumer confidence and
general risk aversion.
 High catastrophic losses incurred resulting from a
number of natural catastrophes including floods and
bushfires. Unprecedented flooding hit Queensland
during 2010-11, resulting in claims that were far in
excess of the long-term average. Australia’s general
insurers had cover from reinsures for a large
proportion of the record claims that followed.
 Increase in lapse rates due to the high initial
commissions and set-up costs, profitability is highly
sensitive to lapse rates.
 The size of reinsurance payouts recovered as a result
of the natural catastrophes meant Australia’s general
insurers are now facing escalating reinsurance costs.
Potential barriers to entry
 APRA is open to new licence applications however the
breadth and complexity of requirements can take significant
time to prepare for in the licence application process.
 It can be a challenge to achieve market share against
dominant incumbents in a mature market.
 Acquisition of more than 15% of an Australian company
requires Foreign Investment Review Board approval.
Australia
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Key developments and future outlook
Key issues
 Significant regulatory change: insurers are working
through an expansive range of regulatory changes
from Australian regulators. These include new
capital rules (LAGIC commenced 1 January 2013),
removal of risk of conflict in financial product sales
(Future of Financial Advice legislation commencing
1 July 2013), and the introduction of new regulations
for superannuation entities (commencing 1 July
2013). In addition, insurers are working through the
implications of overseas regulations such as the
effects of Dodd Frank legislation in the United State
of America
 Low investment yields: continuing low investment
yields are putting pressure on insurers’ profitability
and a renewed focus on underwriting results. Lower
discount rates derived from low government bond
yields in general also lead to higher policy liabilities
and outstanding claims provisions
 Under-insurance: continuing but improving levels
of under-insurance in both the general insurance
and life insurance sectors. NATSEM research in
2010 revealed that 95% of Australian families are
underinsured1
Future outlook
 An economy with modest growth forecast combined
with premium rate increases in certain classes
following the floods should see growth in premium
revenue in the near term
 A better understanding in the community of the value
of insurance, along with evolving and simpler
products to meet customer needs will aid bridge the
underinsurance gap
 Technology combined with greater sophistication in
the use of data will play an increasingly important role
for insurers in the attraction and interaction with
the customer
 Continuing high levels of regulatory presence in
the market
 Changing and toughening competitive landscape
driven by a battle for the customer between
traditional insurers and other mass customer
interfacing businesses.
 New entrants: emergence of non-traditional sources
of competition, for example the entry into the general
insurance market of Coles, one of the two dominant
supermarket chains in Australia
 Productivity: in the current lower growth
environment, insurers are focusing on cost
containment and productivity initiatives to maintain
and achieve growth in profitability. This includes a
growing trend to use off-shore resources for
administrative processes.
1
Financial Services Council news release, 3 August 2012, “New Life Insurance Framework will reduce premiums”
Australia
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Key players and competition
Competitive environment
General Insurance
Life Insurance
The general industry is made up of 121 registered
companies2 characterised by moderate concentration.
The major insurers have built up years of goodwill and
brand recognition which strengthens their competitive
edge. IAG and Suncorp are particularly dominant in the
home and motor classes. By focusing on brand and
reputation insurers are securing business, particularly
by focusing on product flexibility and service quality.
The life insurance industry is moderately concentrated.
Apart from AMP Limited, it is dominated by the local
Australian banks. There has been a high level of mergers
and acquisitions in the past ten years.
Though the major players are fairly established, their
collective market power has not constrained new entrants
from successfully entering the market in recent years
however these new, smaller entrants are yet to make
significant gains in market share.
AMP’s takeover of AXA in March has seen a
reclassification of the industry as highly concentrated.
The last year has seen concentration fall, however, as
some of the industries larger players, typically diversified
financial institutions, have suffered from high exposure
to weak investment markets. Mid-tier firms such as TAL
and Challenger have gained ground on their top-tier
counterparts.
Key players
2
“Quarterly General Insurance Performance Statistics”, accessed on 16/04/2013, APRA website: http://www.apra.gov.au
Australia
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Contacts
PwC in the market
Scott Fergusson
Shane O’Sullivan
Australian Insurance Leader
Strategy and Digital Advisory
+61 (2) 8266 7857
scott.k.fergusson@au.pwc.com
+61 (3) 8603 5333
shane.osullivan@au.pwc.com
Peter Kennedy
Mark Allaby
Tax
Performance Optimisation
+61 (2) 8266 3100
peter.kennedy@au.pwc.com
+61 (2) 8266 2309
mark.allaby@au.pwc.com
Christa Marjoribanks
Glenn Rogers
General Insurance Actuarial
Technology and Projects
+61 (2) 8266 5790
christa.marjoribanks@au.pwc.com
+61 (3) 8603 0735
glenn.rogers@au.pwc.com
Jason Slade
Nicole Salimbeni
Life Insurance Actuarial
Risk and Forensics
+61 (3) 8603 4803
jason.slade@au.pwc.com
+61 (2) 8266 1729
nicole.salimbeni@au.pwc.com
Australia
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The China Insurance Regulatory Commission (CIRC) is
an independent government agency directly under and
authorized by the State Council to regulate the Chinese
insurance industry and market. CIRC’s main tasks are to:
 set the development strategy and plan for Chinese
insurance industry and to formulate policies for the
Chinese insurance industry
 scrutinize and approve : insurance companies
operating in China as well as their subsidiaries and
holding companies; representative office of foreign
insurance companies; insurance intermediaries
operating, including insurance agencies, insurance
brokers and insurance assessment companies as well
as their subsidiaries; insurance companies or noninsurance companies operating insurance business
overseas; merger, division, alteration, dissolution,
taking over and designated assuming insurance
organizations; insurance asset management
companies operating, and participate in the resolution
of insurance company bankruptcy and liquidation;
 scrutinize and approve the qualification of senior
management personnel and to set up qualification
standards for insurance professionals
 scrutinize and approve the insurance product terms
and rates for products with public social benefit,
compulsory insurance products and new life
insurance product types; to manage product terms
and rates filing for other insurance products
 monitor and regulate the solvency and market
conduct of insurance companies; to manage the
insurance security fund; to set the insurance asset
management regulations and to monitor the
compliance of the insurance companies
 monitor and supervise government policy driven
insurance and compulsory insurance business and
activities, to monitor and regulate self-insurance and
mutual insurance organization structures and
business activities. To manage insurance industry
associations, eg Insurance Association of China3 and
the Insurance Institute of China4
 investigate and penalize insurance organization or
practitioner ’s non-compliance activities, unfair
market competitions, and unauthorized organization
conducting insurance – related business activities
 regulate domestic insurance companies or domestic
non-insurance companies operating insurance
business overseas
 set up industry information standards, risk
management evaluation, early warning and
monitoring systems, in order to continuously monitor,
analysis and predict insurance industry operational
conditions, to responsible for organizing insurance
industry data and financial statements to be issued in
accordance with relevant state provisions
 undertake other assignments designated by
The State Council.
In September 2008, China Insurance Security Fund Co.,
Ltd was established as a non-profit state-owned
corporation with a registered capital of RMB 100 million,
its main responsibility is fund collection, managing and
operating insurance security fund, participate in
insurance industry risk resolution, manage and work out
the insolvent company assets. Up to 30th September
2012, the fund is approx. RMB 29.5 billion (about
US$4.8 billion).
3
The Insurance Association of China （IAC, hereinafter）was designed in the position of national-wide non-profit organization. Institutional members are insurance
organizations holding operational licenses in China and individual members are proposed by CIRC. IAC main responsibilities can be divided into self regulated
activities and service to CIRC and other government agencies for insurance industry. The IAC is supervised and conducted directly both by China Insurance
Regulatory Commission (CIRC) and by national society management organization – the Ministry of Civil Affairs of PRC as well.
4
The Insurance Institute of China （IIC, hereinafter）was designed in the position of national-wide non-profit organization, engaged in insurance academic research
and policy-making analysis. The IIC is consisted of companies and specialists in insurance and other related fields, and supervised and conducted directly both by
China Insurance Regulatory Commission (CIRC) and by national society management organization – the Ministry of Civil Affairs of PRC as well.
China
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and taxation
Financial reporting
requirements
The Minister of Finance issued new accounting
standards in 2009 which were IFRS based, including
an equivalence of IFRS 4 Insurance Contracts. Under
these standards, Chinese insurers must evaluate
insurance liabilities using a “three building blocks”
approach, ie best estimate + risk margin+
residual margin.
Capital regime and
requirements
The current Solvency Requirement is similar to
European Solvency I, its factor base and has been
effective since 2003.
For P&C insurance company, the minimum solvency
capital requirement is the larger of the following
two items:
 18% of Net Retained Premium less than
RMB100million and 16% of Net Retained Premium
greater than RMB100million or
 26% of the recent 3-year average claim amount less
than RMB 70million and 23% of the recent 3-year
average claim amount greater than RMB 70million.
For life insurance, the minimum solvency capital
requirement has two elements, one for long term
business and the other for short term business.
In addition, CIRC assesses the need for regulatory
actions on a three-tier structure: insurers that fall
within the "Adequate II", ie with a solvency ratio
greater than 150%, CIRC considered solvency level
met; insurers with a solvency ratio between 100% to
150% are categorized as "Adequate I", and the CIRC
can request them to come up with a insolventprevention plan; delinquent insurers with a solvency
ratio below 100% would result the harshest sanction as
they are deemed to be "Inadequate".
In 2010, CIRC had begun to discuss the
implementation of European Solvency II equivalent
risk based requirements for China. CIRC introduced
Draft Guidelines in 2010 that started the Chinese
Solvency Reform work, which is expected to be
effective in the next two to three years. The Chinese
Solvency II equivalent is China Risk Oriented Solvency
System (C-ROSS). This regime will consist of three
pillars. New regulation on the new C-ROSS framework
was issued on 3 May 2013.
Another requirement that CIRC has announced before
the C-ROSS was initiated was for all life, health and
pension insurance companies to start submitting their
own economic capital reports from 1st January 2014.
Taxation
The corporate tax rate is 25% and is based on the
accounting profit under the new accounting standards
issued in 2009. Insurance companies also pay
premium tax, the tax rates are based on types of
products, typically 5.55%.
For long term life insurance products, the minimum
solvency capital requirement is the addition of the
following:
 for unit linked products, it is 1% of the statutory
reserve and 4% of the statutory reserve for other life
insurance products, plus
 0.1% of the net amount of risk for less than 3-year
covered products, 0.15% of the net amount of risk
for 3-5 years covered products and 0.3% of the net
amount of risk for products covered longer than 5
years. If the insurance company does not have the
segregation by covered period, 0.3% of net amount
of risk should be used.
For short term business, the same requirement for
P&C business as above is applied.
China
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Products
For the life insurance business, participating products
have dominated for the past 15 years, overall accounted
for 80% of total premium income in the life market in
recent two years. Wealth management products
distributed through banks have gained its popularity as
the wealth population continues to increase and the
demands have also increased.
The market for universal life and unit linked was popular
during 2006 – 2008 due to heated equity market, in
particular when the equity market generated high returns
during 2007. In addition to the sharp declined in equity
market in China early 2008, the adoption of IFRS 4 for
the insurance contracts have significantly reduced the
popularity of the investment related unit linked products.
Although traditional life insurance products are not
popular or understood in the China market, big players
have started the transformation from top line market
share focus to bottom line value focus and long term
protection insurance products through agency channel
has regained their importance both within the insurance
company and also the consumers as personal protection
need is increased. .
In the non-life sector, motor insurance has dominated
the Chinese non-life market with premium income
accounting for more than 70% total premium income.
Commercial property insurance, agriculture insurance
and liability insurance are the next three most significant
product lines. The motor insurance class of business will
continue to dominate given the growth in the motor
industry and the high demands from consumers for car
ownership.
China
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Drivers
General Insurance
Life Insurance (inc healthcare)
Pension
The motor insurance market has
been driven by the enormous growth
in the car industry.
The past ten years are the golden era
for the rapid growth of life insurance
market in China. The main insurance
premium came from participating
business and bancassurance channel.
Main factors are:
The core business of pension
insurance companies is the
management of corporate pension
schemes with other business such as
individual pension and short term
group insurance business. The
market is far smaller than that for life
or general insurance market, mainly
due to the following reasons:
There are other laws issued over the
past few years to help the growth of
non-life insurance market in China:
 ”Tort Liability Law” issued on 1st
July 2010 has clarified details on
joint liability and special tort
liability and became one of the
main factors for the development
of liability insurance market
 “Employer Liability Regulation”
has raised the compensation
standards for deaths due to work
related reasons. This helped the
development of employer liability
insurance market. The regulation
came into effective on 1st Jan2011.
In addition, natural catastrophe
events occurred in China in recent
years (eg earthquake in 2008, flood
in large areas in south China since
2008) has raised people’s awareness
on the needs for property insurance.
Man-made catastrophe (eg fire in
2010 in Shanghai) has raised the
profile of home owner & fire
insurance.
 The continuous high growth
in GDP
 The increase in aging population
 The increase in urbanization
 The change in the social benefits.
CIRC published new regulation in
2011 to regulate the bancassurance
channel due to misconduct from
selling practice. Banks are limited to
carry products in bank branches no
more than three providers.
Consequently, a drop in the premium
income from bancassurance channel
was observed.
Meanwhile, the development of other
sales channels (individual agency
channel, corporate agency channel
and direct sales channel) is relatively
slow. For example, the turnover rate
for individual agency is high and it is
costly.
From the product perspective, the
wealth management products issued
by banks have become popular
compared to the 5-year participating
insurance products.
 Lack of individual tax incentive
-
A limit of 5% of salaries from
employers’ contribution can be
treated as tax free, relatively
low comparing to other
countries;
-
Employees’ contribution are
not tax free
-
The tax incentive for annuity
products is given at the
investment and payment stage,
not the contribution stage;
-
The trial implementation of tax
incentive in Shanghai has been
delayed
 The skewed structure of corporate
pension scheme
-
Majority corporate pension
schemes are set up for state
owned companies and the
overall % of coverage in the
country is low;
-
The freedom of the scheme
design for state owned
companies is limited
 The pension providers are
focusing on the increase of market
share instead of scheme benefit
innovation, product design,
pricing and corporate structure.
China
15
Key issues
 Sales channel challenges – the sales volume drops in
bancassurance channel since the new regulation
issued in 2011. There is no clear sign of improvement
in the individual channel, in terms of sales staff
recruitment and retention. Product innovation and
transformation – the market is dominated with bank
distributed 5-year participating endowment products
and they are low profit margin products. Some large
companies are transforming the sales strategy from
‘premium driven’ to ‘value driven’, with more focus on
traditional products through agency such as whole of
life and protection business
 CIRC issued new regulation on investment assets for
insurance companies in 2012 and encouraging
insurance companies use allowable investment assets
to diversify risks, in particular in the equity and
infrastructure projects. This brings new challenges to
the insurance companies on improving asset-liability
management and to take on appropriate risk to
manage risk and return propositions
 Tax incentive is likely to be piloted in Shanghai this
year and it brings opportunities and challenges to
pension market. The main challenges are 1) lack of
pension products, in particular group pension
products 2) the introduction of group pension
schemes to non-state owned enterprises.
Future outlook
General Insurance
Life Insurance
Pension
(including healthcare)
 The pricing limits currently on
motor insurance products could
be lifted in the near future and the
price would be based on supply
and demand in the market.
 Large providers could benefit
from operational synergies to
achieve further expenses savings
with extra pressure on small
providers to survive. However,
vicious competition on prices
could happen again lead to market
damage.
 Direct sales channels, in particular
telephone sales in motor
insurance have developed rapidly
in the recent years. Internet sales
could be something to look
forward to as it is used only as
means of prospective customer
data collection.
China
 A change of management behaviour
from sales driven to value driven is
expected in the next a few years.
However, expenses overrun will
remain a big problem for a large
number of medium to small
companies.
 Tax incentive implementation
trial in Shanghai is expected
within this year.
 The capital management framework
will be risk based and more in line
with the rest of the world, following
the development of C-ROSS regime.
From our current observation, the
management team view this more of
a compliance requirement instead of
an internal management tool.
 With the nature of structure of
state own, we are expecting
little change both in the client
base and the scheme design.
 The implementation of tax
incentive plan will certainly
help the development of
personal pension market.
 The pricing interest rate of 2.5%
could be lifted in 2013. This certainly
will help the development of
traditional life products as they will
be cheaper. Similar to GI, vicious
competition could be a potential
problem to damage the market.
16
General Insurance
Life Insurance
Pension
The increase in the market share of
the top three companies is larger than
those of smaller companies, due to
the brand recognition, consumer
loyalty and widespread network
advantages in the sales channels. In
addition, it is more predictable on the
future development and sales of the
top three companies because they
have better developed and controlled
underwriting, actuarial and claim
processes.
The four companies in the first tier
are the only listed companies (A+H
shares5) in China insurance market
and the market share changed
slightly among the four in recent
years and relatively stable.
State owned companies are main
customers for China pension market
and the top two players take up 80%
market share.
Key players (2012)
6
5
Shanghai and Hong Kong stock exchange listed.
6
Data source: CIRC, market share by insurance gross premium income
China
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Contacts
PwC in the market
Shu-Yen Liu
Actuarial Leader
+86 10 6533 2592
shuyen.liu@cn.pwc.com
Tom TM Ling
China Insurance Leader
+86 10 6533 2381
tom.tm.ling@cn.pwc.com
China
18
19
The Office of the Commissioner of Insurance (OCI) is
the regulatory body set up for the administration of the
Insurance Companies Ordinance (Cap.41) (ICO).
The ICO regulates insurance operations in Hong Kong.
The OCI is headed by the Commissioner of Insurance
who has been appointed as the Insurance Authority
(IA) for administering the ICO. The principal functions
of the IA are to protect the interests of policy holders
and to promote the general stability of the insurance
industry through the monitoring and scrutinizing the
financial position of insurers.
The IA has the following major duties and powers:
 Authorisation: authorisation of insurers to carry on
insurance business in or from Hong Kong.
 Regulation of insurers: the regulatory objective of
the IA is to ensure the financial soundness and
integrity of the insurance market. The primary duty
is to ensure that insurers conduct their activities in
a prudent manner so that their obligations and
policy holders' expectations will be met. Other
operational aspects, such as setting of premium
rates and policy terms and conditions, are largely
left to self-regulation by the industry. Regulatory
work is done primarily through the examination of
the annual audited financial statements and
business returns submitted by the insurers.
Hong Kong
 Regulation of insurance intermediaries: an
insurance agent is required to be properly
appointed by an insurer and registered with the
Insurance Agents Registration Board ("IARB").
An insurance broker may seek authorization
directly from the IA, or may apply to become a
member of an approved body of insurance brokers,
in order to carry on insurance broking business in
or from Hong Kong. An approved body of insurance
brokers is charged with the responsibilities of
ensuring that its members comply with the
statutory requirements and that the interests of
policy holders and potential policy holders are
properly protected.
 Regulation of intermediaries of Mandatory
Provident Funds: the IA is given the statutory role
for monitoring compliance of registered MPF
intermediaries, of whom the IA has been assigned
as the frontline regulator, with the conduct
requirements stipulated in the Mandatory
Provident Fund Schemes Ordinance.
20
and taxation
Financial reporting requirements
Insurers incorporated in Hong Kong are required to prepare financial statements in accordance to the Hong Kong
Companies Ordinance. The accounting principles generally accepted in Hong Kong are the Hong Kong Financial
Reporting Standards (HKFRS) issued by the Hong Kong Institute of Certified Public Accountants (HKICPA).
Long Term
General
Insurers are also required to lodge with the IA certain financial information under the Third Schedule of the ICO.
These include the following:
Financial Information/Returns
Time
Audited
Accounts prepared under Companies Ordinance
Annually within 6 months of
financial year end
Yes
Financial information covering all business written
by the insurer
financial year end
Yes
Statistical returns on annual underwriting results relating
to the general Hong Kong business only (Part 8)
financial year end
Yes
A statement of Hong Kong assets and liabilities relating to
the general Hong Kong business only (Part 9)
financial year end
Yes
Accounts prepared under Companies Ordinance
financial year end
Yes
Financial information covering all business written
by the insurer
financial year end
Yes
Hong Kong Long Term Business Returns (HKL1 form)
financial year end
Yes
A summary of the actuarial valuation (required under part
7) and statement thereon by appointed actuary
financial year end
No
There are also various other reporting requirements specific to certain lines of business such as reporting to the
Employees Compensation Insurer Insolvency Bureau, Motor Insurers’ Bureau of Hong Kong, Mandatory Provident
Fund Authority, Professional Insurance Brokers Association, etc.
Hong Kong
21
Capital regime and
requirements
An insurer must meet the solvency and minimum capital
requirements set out in the ICO. The objective is to
provide a reasonable safeguard against the risk that the
insurer's assets may be inadequate to meet its liabilities
arising from unpredictable events,
The minimum paid-up capital is currently HK$10
million, or HK$20 million for a composite insurer
(ie carrying on both general and long term business) or
for a general insurer who intends to write compulsory
business (ie motor, employees compensation) or HK$2
million for a captive insurer.
For general business insurers, the valuation and
admissibility requirements of the Insurance Companies
(General Business) (Valuation) Regulation (Cap. 41G)
must be applied to arrive at the following solvency
calculation:
 If relevant premiums or claims (whichever is larger)
are less than HK$50m, minimum solvency is
HK$10m
are between HK$50m and HK$200m, minimum
solvency is 20% of the relevant premiums or claims
outstanding; or
are more than HK$200m, minimum solvency is
HK$40m, plus 10% of relevant premium or claims
outstanding in excess of HK$200m
 For general insurers writing compulsory business,
the amount shall not be less than HK$20m
Taxation
The Inland Revenue Ordinance (“IRO”) is the legislation
governing taxation in Hong Kong. Profits tax is generally
charged at the rate of 16.5% of assessable profits of a
corporation. Companies liable to profits tax are required
to file annual profits tax returns and the supporting
documents to the Inland Revenue Department.
Assessable profits of a general business are generally
calculated based on 16.5% of adjusted net profit. Only
premiums in respect of a general insurance contract (i)
made in Hong Kong or (ii) the proposal for which was
made to the insurance company in Hong Kong are
subject to tax.
Assessable profits of a long term insurance business are
calculated based on either 5% of net written premium or
the adjusted surplus. Where no election is made, the 5%
premium method automatically applies. The adjusted
surplus method is based on the actuarial report which an
insurance company must submit to the IA under the ICO.
The election for adjusted surplus basis of assessment to
apply is irrevocable and, although it may be made at any
time, it will only be effective if the actuarial report is
submitted to the Commission of Inland Revenue not later
than two years after the end of the period to which it
relates.
Taxation of an insurance subsidiary or branch in Hong
Kong is generally the same, but with certain exceptions.
As of today, Hong Kong has entered into 29
comprehensive double taxation agreements.
There are currently no value-added or withholding taxes
charged in Hong Kong.
For long term business insurers, the following solvency
requirement is determined in accordance with the
Insurance Companies (Margin of Solvency) Regulation
(Cap. 41F):
 HK$2m; or
 An amount specified under the Insurance Companies
(Margin of Solvency) Regulation 1995.
Hong Kong
22
Products
In the general insurance sector, the main products are accident and health, general liability, property damage and
motor vehicle. Most general insurance is sold through intermediaries and many of the main global insurance and
reinsurance brokers are all represented. Based on net earned premium for the year ended 2012, the following shows a
breakdown of the class of business most prominent in the market.
Class of business
2012
2011
Accident & Health
32%
33%
General Liability
25%
24%
Property Damage
14%
15%
Motor
12%
12%
Marine & Goods in transit
9%
9%
Other
8%
7%
*based on quarterly provisional statistics published by the OCI
For the long term insurance sector, individual life business (including traditional life, unit linked, savings,
participating and other products) continues to dominate the market with a total market share of 94% in terms of gross
written premiums in 2012, followed by retirement scheme management (4%). As at the end of 2011, 9.6 million
individual long-term policies were in force.
Hong Kong
23
Section 6 of the ICO governs the authorization of
insurance business being carried out in or from Hong
Kong, which are limited to insurers authorized under
Section 8 of the ICO, Lloyd's or an association of
underwriters approved by the IA. Authorization to carry
on insurance business in or from Hong Kong will only
be granted to those insurers who meet the authorization
requirements stipulated under sections 8(2) and 8(3) of
the ICO, which focus on, among other things, adequacy
of paid-up capital, maintaining a minimum required
solvency margin, passing a “fit and proper” test and
having adequate reinsurance arrangements. The capital
and solvency requirements are the same as those
discussed in the “Capital Regime and requirements”
section above.
Hong Kong
Currently, licenses will be issued for long term (mostly
life insurance), general (mostly property & casualty
insurance) or purely reinsurance specialist companies
(including captives, who have more lenient authorization
requirements). For companies incorporated outside of
Hong Kong, additional requirements must be satisfied.
However, an overseas applicant may, if it so chooses,
incorporates a subsidiary company in Hong Kong for the
purpose of the application, in which event the additional
requirements will not apply.
An insurance agent is required to be properly appointed
by an insurer and registered with the Insurance Agents
Registration Board ("IARB"), in accordance with the
Code of Practice for the Administration of Insurance
Agents issued by The Hong Kong Federation of Insurers.
An insurance broker may seek authorisation directly
from the IA, or may apply to become a member of an
approved body of insurance brokers, in order to carry on
insurance broking business in or from Hong Kong.
24
Key issues
the stable development of the industry and provide better
protection for policyholders.
Hong Kong is one of the insurance markets in Asia with
higher insurance premium per capital. With the aging
population, the higher awareness of insurance protection
needs and the increasing financial advisory needs,
insurers are becoming more sophisticated in terms of
product designs and service offerings. In Hong Kong,
these are products such as health protection and
retirement planning.
For both life and non-life business, it is recognized that
Hong Kong’s current solvency standard falls short of
global best practice. The IA is considering the
introduction of a risk-based capital system. The updated
framework will need to align with the latest Insurance
Core Principles (ICPs) put forward by the International
Association of Insurance Supervisors (IAIS). The
adoption of a new RBC system for Hong Kong is unlikely
to take place until the establishment of an IIA.
The Hong Kong Government is seeking to reform the
private market for voluntary hospitalisation
reimbursement insurance through the Health Protection
Scheme (HPS). Around 32% of Hong Kong residents are
currently covered by this type of medical insurance.
The reforms aim to improve product transparency and
access to insurance for consumers while reducing the cost
of the public health system. The government has
commissioned a consultant (PwC) to study the local
market, overseas experience and local insurance data to
propose an actuarially feasible and sustainable HPS for
Hong Kong. The proposed HPS will go through public
consultation in early 2014 prior to implementation.
Furthermore, health protection gaps in Hong Kong
markets are recognised in the insurance industry.
A recent study shows that while 74% of respondents
owned at least one insurance policy, 48% have not
purchased any medical insurance and 46% did not have
critical illness coverage.
Pension reform is also gaining traction due to the
increasing focuses on investment returns, quality and
efficiency of financial advice, and the need to enhance
their social welfare and pension systems to cater to the
aging population. It is expected that the total population
of Hong Kong residents over 60 will be around 40%
by 2050.
Additionally, the low interest rate environment has also
impacted the Hong Kong long-term insurance industry
in the past couple of years, in terms of pricing and
solvency maintenance. This has affected the product
designs, capital efficiency and parent company funding
decisions.
Hong Kong is in the process of getting Legislation
Council (Legco) approval for establishing an Independent
Insurance Authority (IIA). The main purposes of
establishing an IIA to replace the existing OCI and
introducing a statutory licensing regime for insurance
intermediaries to replace the existing self-regulatory
regime to align with international practice that financial
regulators should be financially and operationally
independent of the Government, and modernise the
insurance industry regulatory infrastructure to facilitate
Hong Kong
Future outlook
It is expected that the insurance market in Asia will
continue to grow at a good pace, given the relatively low
penetration, the increasing awareness of insurance
needs, the expected higher GDP growth, the increasing
population and other factors.
Furthermore, PRC continues to be viewed as the region of
opportunities. Hong Kong's insurance players can benefit
from the Closer Economic Partnership Arrangement
signed with the PRC to tap into a market that has a much
lower penetration rate. The industry has seen a
significant increase in policies sold to Mainland China
Visitors (“MCV”) while they are on holiday in Hong Kong.
New MCV premiums represent a significant percentage
of total new sale for individual policies in 2012. It is
anticipated that this trend will continue.
The industry is also seeing a growth in RMB
denominated insurance endowment polices as Hong
Kong investors take advantage of the rising yuan. The
continued loosening of regulation on foreign insurer’s
ability to purchase RMB denominated assets through
channels such as the Qualified Foreign Institutional
Investor and the interbank bond market to hedge the
currency risk associated with offering such RMB
denominated products have further encouraged
its growth.
Mergers and acquisitions have become increasingly
prominent in Asia and in Hong Kong. Local subsidiaries
of multi-national insurance firms are being sold in
response to the streamlining efforts of their foreign
parent as they turn to focus more on their core
operations.
Additionally, insurers are finding themselves having to
keep pace with products and services catering to the
consumers’ increased use of mobile technology. This will
require the development of new distribution and service
channels such as like web portals and mobile apps, which
will supplement the traditional agency channels.
25
Based on OCI statistics as at 31 March 2013, there were 154 authorized insurers in Hong Kong, of which 91 were pure
general insurers, 44 were pure long-term insurers and the remaining 19 were composite insurers. On the distribution
front, there are 2,406 insurance agencies, 36,875 individual agents and 27,868 responsible officers/technical
representatives registered with the IARB and 613 authorized insurance brokers.
Key players
Based on 2011 OCI statistics, in the general insurance market, AXA (Including HSBC), Chartis Insurance, Bank of
China, Zurich and Bupa make up over 30% of the total market share based on gross written premium. For long term
insurance, AIA, Manulife, Prudential (UK), AXA and HSBC Life lead the industry in terms of in-force portfolio. HSBC,
Bank of China, China life and AIA write over 59% of total new business premiums in Hong Kong.
Hong Kong
26
Contacts
PwC in the market
Lars Nielsen
Jeffrey Boyle
Partner – Insurance Leader
Partner – Advisory
+852 2289 2722
Lars.c.Nielsen@hk.pwc.com
+852 2289 5005
Jeffrey.Boyle@hk.pwc.com
Peter Whalley
Peng Jin
Partner – Assurance
Partner – Actuarial
+852 2289 1192
Peter.Whalley@hk.pwc.com
+86 (0) 6533 5381
Peng.Jin@cn.pwc.com
Billy Wong
Rex Ho
Partner –Assurance
Partner – Tax
+852 2289 1259
Billy.Wong@hk.pwc.com
+852 2289 3026
Rex.Ho@hk.pwc.com
Matthew Phillips
Partner – Transactions
+852 2289 2303
Matthew.Phillips@hk.pwc.com
Hong Kong
27
Hong Kong
28
The Insurance Regulatory and Development Authority (IRDA) is the Indian insurance regulator constituted under a
Parliamentary Act of 1999. It is under the supervision of the Ministry of Finance, Government of India and headed by
a Chairman with a team of five Members for (Life); (General), (Actuarial) and (F&I). The IRDA is mandated to issue,
renew, modify, withdraw, suspend or cancel licenses or registrations to insurers (life and general) and intermediaries.
The IRDA supervises the sector through legally binding prudential standards to ensure compliance and the sound
development of the sector. The IRDA approves all insurance products, controls and regulates rates, regulates
investment of funds by insurers, and monitors insurers’ solvency margins.,
India
29
and taxation
Financial reporting
requirements
The financial statements of Indian insurers are required
to be prepared in accordance with Indian GAAP and
IRDA reporting regulations for insurance companies.
A life insurer is required to comply with the requirements
of Schedule A of the Insurance Regulatory and
Development Authority (Preparation of Financial
Statements and Auditor’s Report of Insurance
Companies) Regulations, 2002, and a general insurer is
required to comply with the requirements of Schedule B
of those Regulations. The scope and content of the audit
report is prescribed in Schedule C of the IRDA’s
Regulations.
The actuarial valuation of liabilities for life policies in
force is the responsibility of the Company’s Appointed
Actuary. Actuarial assumptions used for determining
the actuarial valuation of liabilities are to be disclosed by
way of notes to the accounts.
Taxation
Special provisions apply for taxation of profits from
general insurance business which require taxable profits
to be calculated in a prescribed manner. As per these
provisions, accounting profits disclosed by annual
financial statements are subject to adjustments relating
to prescribed provisions which are disallowed as
deductions, inclusion in taxable income of gains and
losses on investments not taken through profit and loss,
and the deduction for amounts taken to unexpired risk
reserves up to prescribed limits.
Dividend income, which is subject to Dividend
Distribution Tax (DDT), is exempt in the hands of the
shareholders. However, a dividend distribution tax of
16.22% is currently levied on companies declaring a
dividend.
General insurance premiums collected are subject to a
Service Tax of 12.36% on the entire amount subject to
exemptions for specific schemes, most of which are
schemes of social importance such as cattle insurance,
tribal insurance, and crop insurance.
Life insurance premiums generally also attract a service
tax at 12.36% (including education cess of 2%, and
secondary and higher education cess of 1%) on the entire
amount charged by the policy holder excluding the
portion of investments. Insurers in some cases may be in
a position to opt for the composite scheme whereby
service tax is payable at 3.09% of the premium for the
first year and 1.545% (both rates inclusive of education
cess of 2% and secondary & higher education cess of 1%)
of the gross amount of premium for the subsequent
years, without a distinction being made between risk and
investment portions.
All goods sold in the course of interstate trade are subject
to Central Sales Tax (CST) and sales within any State are
chargeable to Value Added Tax (VAT) under the VAT
laws of the relevant State. Applicability of VAT on
insurance companies, depend upon the VAT laws of the
respective State. If insurance companies are covered,
then sale of moveable assets by insurance companies will
attract the levy of state VAT. The rate of tax would vary as
per the VAT laws of the respective states.
The tax rate for Domestic general insurance company is
32.445%. Profits of life insurance business are taxable at
the concessional tax rate of 13.52%. Profits on life
business means the incremental surplus/deficit as is
determined based on the actuarial valuation made in
accordance with the Insurance Act, 1938. A Minimum
Alternative Tax (MAT) at effective rate of 20.01% of book
profits is levied on companies whose tax payable under
normal income tax provisions is less than 18.50% of book
profits. A credit of such tax paid under MAT provisions
by a company is allowed against a tax liability that arises
in subsequent ten years under the normal provisions of
Income tax law. MAT provisions do not apply to any
income accruing or arising to a company from life
insurance business (as per amendment made by Finance
Act, 2012 with effect from 1 April, 2001).
India
30
Products
The Indian general insurance sector (P&C) offers a full
range of products for the retail and commercial
segments. The key products include fire, marine,
aviation, engineering, motor/auto, workmen’s
compensation, public liability, product liability, personal
accident, health, crop and credit.
These products and services are distributed via brokers
and agents, insurance companies and the internet. Large
and commercial risks are managed either directly or in
cooperation with brokers. Banks are currently licensed as
Corporate Agents and permitted to distribute only for
one insurer. This however may change as IRDA is
contemplating changes in bancassurance laws. Digital
and online activity has been focused largely around
motor/auto; overseas travel and health products.
Life insurers have been selling mainly individual and
group life, unit linked, pension and endowment products.
Since regulatory developments in 2010, which
constrained the selling of unit linked products, life
insurers have focussed on the sale of traditional life
products. There is now a big push to distribute term life
products online.
India
31
Drivers
General Insurance
Life Insurance
 When compared to other BRIC countries and other
emerging markets like Thailand, India has the lowest
penetration of 0.7 % of GDP, which is significantly
lower compared to other BRIC countries like China
(1.3 %), Brazil (1.5 %); Russia (2.3 %) and other
emerging markets like Thailand (1.7 %)
 Impactful regulations since 2010 starting with
guidelines on selling universal life; outsourcing of
activities; agency persistency and productivity ;
pension products; IPOs, ALM, and anti-fraud policies.
There are more policies from the IRDA expected
around bancassurance (open architecture regime)
which are likely to cause further changes in
business models
 Underwriting losses were over $1.66 billion in FY 2012
largely increased due to increase in unexpired risks,
inadequate risk-based pricing, leakage through
inefficient claims practices. There is a considerable
spread between the top quartile and bottom quartile in
terms of returns. However, no player has been yet to
achieve the balance between growth and underwriting
profitability
 Motor is likely to continue being the largest line of
business contributing around 40-45% of industry
premiums, while health would be the fastest growing.
In India, health is classed as General insurance.
Within health, Government sponsored schemes are
proliferating quite fast while the retail spread is
perhaps likely to be the single largest segment.
 Distribution remains the single largest piece of the
puzzle for a successful insurance operation. While
productivity and persistency have been falling for
owned agents on the one hand, the rush to tie up with
banks is at an all time high. Existing players have been
also trying to secure banks as an additional JV partner
 Life insurers are looking to technology to resolve
issues in distribution (Web 3.0 or online selling),
analytics, Big Data, cloud computing and
other aspects.
 The IRDA is open to new license applications however the breadth and complexity of requirements can take
significant time to prepare for in the licence application process.
 Insurers with a line of business speciality or that have a strong geographic Indian partner may be able to see some
good successes. A preferable choice of foreign partners might have been a domestic bank, though the choices now
are limited.
India
32
Key issues
Future outlook
 The IRDA is likely to introduce Bancassurance
guidelines, which is expected to create more latitude
for insurers to establish distribution arrangements
with banks.
 The outlook for general insurance is largely positive
driven by underlying demand tailwinds eg India’s
auto sector is likely to become the world’s third largest
while infrastructure spending is expected to be over
$1 trillion as per the latest five year plan.
 The IRDA has asked insurance companies to put in
place procedures for fraud detection and its control
and to have a board-approved anti-fraud policy by
30th June 2013.
 The IRDA will be shortly releasing regulations for the
amalgamation of life insurance companies, the issue
of capital by non-life insurers and also draft
guidelines on design of life policies.
 India’s Cabinet has approved the Insurance
Amendment Bill and is likely to present it for
discussion and vote in the Parliament
 Specialist insurers are likely to enter the market.
Certain players may seek to become specific risk
specialists, developing expertise or focus in a limited
set of risks, channels, or geographies.
 While competing for market share, insurers are
expected to look for ways to focus on improving
profitability. Loss making agency models could give
way to the more efficient bancassurance or alternate
channels.
 Sustainable developments in the claims function are
expected which may make it more efficient and less
prone to error and fraud.
 Sound and stable economic environment framework,
one of the few economies to continue growing in the
range of 6+%. This is supported by the growing Indian
middle class and rise in income levels: In India, the
emerging middle class will constitute a $1 trillion
market (2010 prices), by 2021, representing about
28% of India’s GDP and about 16% of the Emerging
Middle class global market of around $6 trillion.
 Political stability as India remains the world’s largest
democracy
India
33
General Insurance
Life Insurance
 Top five players, which include all four government
general insurers, control over 65%of the
market share
 Top five players, including state run Life Insurance
Corporation (LIC) control over 86% of the market share
 Four Government run insurers have built years of
customer loyalty and have deeply established
distribution architecture of branch offices even in
the remotest places, agents, brokers and now the
online space as well. These insurers headquartered
in each major metro (Delhi, Mumbai, Chennai,
Kolkata) elicit good customer confidence due to their
sovereign backing
 Amongst the private insurers, ICICI Lombard, part
of the ICICI Group, holds the highest market share
followed by Bajaj Allianz and IFFCO Tokio General
insurance. Private players have been aggressively
growing over the last 12 years with growth of over
24% YoY in FY 2012. They have focused on fine
tuned underwriting controls, superior claims
management and technology support.
 LIC, which has been synonymous with the more popular
individual perception of ‘insurance’ for a number of
decades has maintained it’s leadership position amongst
23 private life insurers. It’s share has improved recently
post the regulatory changes as consumers shifted loyalty
albeit due to the perceived longevity and safety of a
government insurer
 Private players have enjoyed good successes since
market liberalisation. Their growth stride halted around
2008, essentially due to the economic downturn and
then in 2010 post regulatory changes. Private insurers
have reworked their business models, reduced costs
drastically, re-aligned distribution architectures and
have found technology as an able ally beyond
traditional usage
 India’s life market continues to be attractive as more
foreign players seek an India presence.
Key players
India
34
Contacts
PwC in the market
India
Manoj Kashyap
Nitin Karve
FS xLoS India Leader
Tax Insurance Leader
+91 22 6669 1888
manoj.k.kashyap@in.pwc.com
+91 22 6669 1477
nitin.karve@in.pwc.com
Gautam Mehra
Anuraag Sunder
FS Tax Leader
Insurance Knowledge Manager
+91 22 6669 1155
gautam.mehra@in.pwc.com
+91 24 4620103
anuraag.sunder@in.pwc.com
35
India
36
The insurance industry in Indonesia provides general and life insurance to individuals and businesses. Starting 2013,
all insurance companies in Indonesia are licensed and supervised by the Indonesian Financial Services Authority
(previously under Insurance Directorate of Capital Market Supervisory Agency under Ministry of Finance). The
insurance sector is subject to the Indonesian Insurance Companies Law and other related government regulations.
Indonesia
37
Financial reporting,
capital and taxation
Financial reporting
requirements
Capital regime and
requirements
For the purposes of financial reporting, Indonesia
insurers apply Statement of Financial Accounting
Standard (SFAS) 62 Insurance Contract, SFAS 36
(revised 2012) Accounting for Life Insurance Contract,
and SFAS 28 (revised 2012) Accounting for General
Insurance Contract. SFAS 62 is adopted from IFRS 4
Insurance Contracts. The SFAS 28 and 36 aim to
complement SFAS 62. There are no standards in
IFRS/IAS which are equivalent to SFAS 28 and 36.
Under revised regulations, insurance companies were
required to comply with the minimum capital
requirement of Rp 40 billion by 2008 and Rp 100 billion
by 2010. Due to the inability of many insurance
companies to meet such deadlines, the Government
extended the deadline to 2014 with the gradual increase
of the minimum capital required of Rp 40 billion by
2010, Rp 70 billion by 2012 and Rp 100 billion by 2014.
Indonesia
38
Products
In recent years, unit-linked products have dominated
life insurance companies’ products. Premium from
unit-linked products reached 60% of total life insurance
premiums across Indonesia. For general insurance,
premium from motor-vehicle business is increasing as
a result of the growth of the automotive market
in Indonesia.
As at 31 December 2011, the investment portfolios of life
insurers consists of 31% mutual funds, 23% shares, 19%
government bonds, 12% time deposits and 25%
attributable to other 7. For general insurance, the
investment portfolio is dominated by 40% time deposits,
followed by 22% marketable securities, 19% mutual
funds, and 18% direct investments8 .
Drivers
The growth in life insurance segment is dependent
on growth of GDP, population and life density and
awareness of insurance offering.
The key drivers of general insurance segment is
dependent on the growth of property, automobile
financing and personal accident and health sector.
Indonesia
Potential barriers
to entry
Indonesian market is very fragmented and significant
presences from global players which is very dominant to
the market penetration. Limited license issued by
regulator and challenge from multiple new regulations
are might become barrier to entry to the
Indonesian market.
7
Investor Magazine July 2012
8
Investor Magazine, July 2012
39
Key issues
Future outlook
 Insurers are dealing with new solvency regulations
introduced in 2013 and the implementation of new
accounting standards which could significantly
impact insurers’ reported financial performance
and position. These impacts mainly relate to the
adequacy of an insurer’s solvency ratio and
requirements to do an assessment on insurance
technical reserves through liability adequacy testing
and assessment of the recoverability of deferred
acquisition costs.
 The insurance industry in Indonesia still has large
growth potential considering the current level of
product penetration and density which are still much
lower than those of other South East Asian countries.
In addition, a large proportion of Indonesians are
currently underinsured.
 Unemployment and lack of institutional
transparency remain the concerns for businesses
considering operations in Indonesia.
 Foreign investment inflows have been volatile, and
the country depends on foreign capital markets to
fund industrial and infrastructure developments.
If the subprime crisis has a cascading effect on global
credit markets, then the availability and cost of capital
for high risk destinations such as Indonesia could
become an issue.
 Multi-channel distribution will grow in popularity in
Indonesia to leverage customer bases and enhance
cross-selling. Although agents will retain a strong
presence in the near to medium future, bancassurance
is drawing increasing interest for insurance
companies as a significant distribution channel.
 Sharia insurance focus will continue to increase to
cater for the fact that Indonesia has the world’s largest
Muslim population and therefore a huge market for
sharia insurance. 80% of Indonesia’s estimated 245
million population is Muslim.
 The political environment can create uncertainty
for insurers and there is considerable bureaucracy,
impacting the efficiency of the market. The next
presidential election is due to be held in 2014.
 Potential floods or earthquakes that may result from
poor environment management, global warming or
natural cause remain a challenge for
property insurers.
 Premium war in non-life motor vehicle insurance
caused failures for certain insurers to pay out claims
and had significant profitability impacts. The
Government has issued new regulation to regulate
pricing; however, insurance players have yet to fully
comply with the regulation.
 Limited underwriting capacity of domestic insurers.
Many domestic companies reinsure their risks to
foreign reinsurers, shifting significant premiums
overseas. With little premiums retained, the capacity
of domestic insurers to cover risks remains weak.
Indonesia
40
There are 45 life insurance companies operating in
Indonesia and the market is dominated by only few
insurance companies based on assets and premiums.
The top ten companies hold almost 76% of the total
market share without any significant dominant players.
Improved macroeconomic conditions and higher life
premiums per capita (life density) contributed to a
better profitability compared to non-life segment.
There are 83 non-life insurance companies operating in
Indonesia and the market is dominated by only few
insurance companies based on assets and premiums.
The top ten companies hold around 57% of the total
market share without any significant dominant players.
Particularly for motor vehicle insurance, intense
competition has led to lower premiums and margins.
Key players
Indonesia
41
Contacts
PwC in the market
Andry D. Atmadja
Cliff Rees
Partner
FS Insurance Leader
Technical Advisor
Financial Services Leader
+62 21 521 2901 ext 90635
andry.d.atmadja@id.pwc.com
+62 21 521 2901 ext 90550
cliff.rees@id.pwc.com
Angelique Dewi Daryanto
Partner
Insurance Partner
+62 21 521 2901 ext 75636
angelique.daryanto@id.pwc.com
Lucy Luciana Suhenda
Partner
FS Assurance Leader
+62 21 521 2901 ext 76060
lucy.suhenda@id.pwc.com
Margie Margaret
Tax Partner
+62 21 521 2901 ext 90862
margiemargaret@id.pwc.com
Cornelis P. Poelman
RCS Technical Advisor
+62 21 521 2901 ext 75683
cornelis.p.poelman@id.pwc.com
Indonesia
42
Indonesia
43
The insurance industry regulator in Japan is the
Financial Services Agency (FSA). The FSA supervises
financial institutions as well as certified public
accountants and auditing firms. The FSA is responsible
for ensuring the stability of Japan’s financial system, and
the protection of depositors, insurance policyholders and
securities investors, through such measures as planning
and policymaking concerning the financial system,
inspection and supervision of private sector financial
institutions, and surveillance of securities transactions.
The insurance industry is highly regulated. Insurers
require a licence approved by FSA to undertake insurance
business in Japan.
In 2007, the FSA kicked off a project, “Better
Regulation”, to encourage financial institutions to
maintain proactive and up-front communication with the
regulator to avoid future surprises. The following pillars
were established:
 First pillar: development of explicit rules and
principles.
 Second pillar: timely recognition of priority issues and
effective response.
 Third pillar: encouraging voluntary efforts and
emphasis on incentives
 Fourth pillar: improving regulatory transparency.
All life insurers are members of the industry’s
representative body, the Life Insurance Association of
Japan (LIAJ). LIAJ is started as an incorporated
association with formal sanction by the authorities
concerned on 7 December 1908. There are two
associations in Japan representing the general insurance
market, the General Insurance Association of Japan
(GIAJ) and Foreign Non-Life Insurance Association of
Japan (FNLIA). Most domestic companies including 3
mega general insurance groups are the member of GIAJ.
Most of foreign capital insurance companies including
both of branch form and subsidiary form are the member
of FNLIA.
Japan
44
and taxation
Financial reporting
requirements
The Insurance Business Law in Japan requires an
insurance company to file semi-annual and annual
returns to the FSA, and then publish an annual disclosure
report. No external audit of these statutory returns and
annual disclosure report is required under the Insurance
Business Law.
An insurance company incorporated in Japan is required
to prepare an annual financial report, which is subject to
audit and based on the Japanese Company Act. Since the
annual return to be filed with the FSA basically imports
the financial part of the annual report under the
Japanese Company Act, most of the financial aspects of
the annual returns to the FSA are audited already. In
contrast, a branch of foreign insurer, which is not a
company incorporated in Japan, is not subject to
reporting under the Japanese Company Act, and
therefore it is also not subject to external audit. A listed
insurance company is required to disclose financial
results on a quarterly basis. Financial results for 1Q and
3Q are subject to external review, but 2Q is subject to
external semi-annual audit.
based capital requirement in concept. If solvency margin
ratio is less than 200 %, the FSA will take prompt early
warning measures which in the worst case can lead to a
suspension of the insurance business. The FSA has
indicated an interest in implementing a new solvency
regime and in this regard is paying attention to the
Solvency II outcome in Europe.
Taxation
Insurance businesses operating in Japan are assessed for
tax under the Japanese Corporate Tax Laws. National
corporations tax and local inhabitants tax are payable on
the profits of insurance businesses at the tax rate, which
is currently approximately 33.3%. This rate comprises the
national corporation tax rate of 28.05% (25.5% plus
temporal restoration surtax of 2.55%) and a local
inhabitants tax rate of 5.2785% applicable in Tokyo. The
national corporation tax rate is scheduled to decrease to
25.5% for fiscal years beginning on or after April 1, 2015.
Insurance companies should follow Japanese GAAP
unless overriding rules have been established by the
Insurance Business Law and related regulations. In
Japanese GAAP there are no comprehensive set of
accounting standards for the insurance contracts (such
as IFRS) or Insurance industries (such as USGAAP).
In addition to the profit-based national corporations tax
and local inhabitants tax, non-life insurance businesses
are subject to size-based local enterprise tax and local
corporate special tax. Local enterprise tax and local
corporate special tax are payable on the premium income
of an insurance business multiplied by a certain ratio at
the tax rate of 1.332%. The applicable ratio, differs
depending on the class of business, for example hull
insurance (25%), land transport insurance and cargo
insurance (45%), compulsory automobile liability
insurance (10%), earthquake insurance (20%) and
others (40%).
The Insurance Business Law in Japan, related
enforcement rules and announcements from the
regulators define detailed and individual requirements
for accounting for insurance companies. Such areas
relate to methodologies for calculating policy liabilities
and outstanding claims provisions, recognition of
premium revenue, liability adequacy testing, and
accounting for certain initial business set up costs,
among other topics.
The taxable basis of local enterprise tax and local
corporate special tax for a life insurer is calculated as
annual gross premium income (excluding reinsurance
premium income and before deduction of ceded
insurance premium) multiplied by the applicable ratio, ie
group pension insurance (5%), group insurance other
than the group pension insurance (16%), saving
insurance other than the group insurance (7%) and other
individual insurance (24%).
Capital regime and
requirements
The provision of services within Japan are generally
subject to Japanese consumption tax at the tax rate,
currently 5% under the Japanese Consumption Tax Law.
Following the amendment to the Japanese Consumption
Tax Law, the consumption tax rate will be raised to 8%
from April 1, 2014 and to 10% from October 1, 2015.
Certain types of transactions, however, are treated as
non-taxable transaction for Japanese consumption tax
purposes. Receipt of insurance premiums and payment of
insurance claims are not subject to Japanese
consumption tax.
Solvency margin regulation was established in 1996 for
both life insurers and general insurers. It has been
revised couple of times and since 2012, the current
regulation considers solvency from both a consolidated
and stand-alone basis. The solvency margin calculation is
a factor based calculation and similar to the US risk
Japan
45
Products
Traditional life insurance products such as Whole life,
Term life, Endowment continue to be the major products
sold in Japan. Products such as Medical and Cancer
insurance are heavily sold by foreign life insurers.
Variable annuity products were well sold in 2000 to 2007
but decreasing the balance by reflecting depression of the
economies.
Group term life and Group annuity business is also sold
largely to companies for the purpose of employee benefits
and saving strategies.
In Japan, there is a comprehensive range of general
insurance products available for both of individuals and
corporate policyholders. As with the life segment,
individual insurance dominates the market. Total
industry premiums are generally spread as follows: about
50% from Voluntary auto, 15-20% from Fire, 10-15%
from Personal Accident, 10% from miscellaneous
Casualty and 10% from Compulsory Automobile Liability
Insurance (CALI). Marine and In-land transit is less than
5% share.
CALI is a mandatory insurance for automobile liability
required by CALI Act 1955, and coverage and premiums
are regulated. Results of underwriting are gathered into a
nation-wide pool then ceded back to the individual
insurance companies who participate in the pool.
A nation-wide earthquake program for households has
been established through the Earthquake Insurance Act
1966, which can be sold as a rider on fire insurance. The
coverage, premiums and claim payments under the
program are regulated. Results of underwriting aggregate
into a complex reinsurance program which is ultimately
underwritten by the Japanese government.
In-house or agencies tied to the insurer are the prime
distribution channel for the traditional life insurance
products. Independent agents tend to sell Medical,
Cancer or Hospitalisation products. Bank channels
typically sell Fixed Annuity and Variable Annuity
products. The proportion of sales through the internet is
gradually growing off a low base.
Independent brokers are still the major distribution
channel in general insurance market. Direct insurance for
Auto and Personal Accident continues to grow gradually.
The proportion of sales through the internet is gradually
growing off a low base.
Japan
46
Drivers
 Growth in the insurance market follows that of
the wider economy. Japanese GDP has been in
decline
 The population has remained relatively stable for
the past decade and there is an ageing population
 Continued competition in the mature market.
Potential barriers
to entry
These are not necessarily barriers, rather uniqueness in
the market:
 Talent shortage: the insurance market is relatively
small compared to the capital markets, therefore,
insurance experts may not be a large population like
those in the capital markets. English education in
Japan has focused on reading and writing skills rather
than hearing and speaking skills. Documentation is
written in Japanese with Chinese characters.
 Investment market: the investment market
environment has been suffering lower returns due to
poor performance of Japanese economy.
 Demographic change in Japan: due to change of the
demographic derived from a decrease in population
led by the lower birth rate and longer life expectancy,
the Japanese population is expected to shrink. This
means the nature of risk to be insured will shift which
may create new opportunities.
 Regulation and supervision: the industry is regulated
by the FSA who grants licences and expects upfront
and proactive communication with licensees.
 Global trend in regulation: following the financial
crisis and the reporting from the Financial Sector
Assessment Program of some concerns with the
regulatory framework in Japan, the FSA has been
considering the enhancement of the supervision
regime for financial institutions including insurers.
No announcements have yet been made as to what
changes will be made but any changes are likely to
follow trends in global regulatory and capital
frameworks, such as Solvency II.
Japan
47
Key issues
Future outlook
 High level concentration into Japanese Government
Bond (JGB) may create future unrealized losses
when interest rates increase. The impact of a JGB
interest rate change may be larger for life than the
general insurance industry due to the accumulation
of long duration insurance contracts and related
assets
 Continuously competitive markets
 Selling stock investments in order to reduce equity
risk exposure may impact profitability of insurers
 Consumption tax rate increase in the future may
squeeze insurance profitability
 Potential recovery in the Japanese economy may
provide growth opportunities for the insurance
industry
 Trends in regulation change, particularly around risk
based capital, will impact insurers both in terms of
how much capital is required but also the approach to
managing the risk sensitivities around capital
assessments.
 Some Japanese insurers are making investments in
overseas insurance businesses which will require new
management skills for the Japanese insurers
 Pricing competition in the lower investment yield
market may squeeze insurance profit
 Automobile insurance pricing competition may
continue to erode margins across the industry
 Potential increases in frequency of natural disasters
may bring larger volatility to the profitability of
insurers, compared to the past experience.
Japan
48
Life insurance
General insurance
The life insurance industry is considered to have a high
level of concentration. There are 43 life insurance
companies in Japan, including a government owned
company, Kampo Life (Japan Post Insurance), 4 major
domestic life insurers and another 38 companies. Kampo
and 4 major insurers account for 70% of industry-wide
total assets. 4 major domestic life insurers consisted of 3
mutual life insurers (Nippon Life, Meiji Yasuda Life and
Sumitomo Life) and a listed stock life insurance company,
Dai-ichi life, which demutualised in 2010.
The general insurance industry is considered to have a
very high level of concentration. There are 53 general
insurance companies in Japan and 29 companies are
domestic insurers incorporated in Japan (5 companies
are owned by foreign capital), while 24 companies are
primarily branches of foreign non-life insurers or non-life
reinsurers. There are 3 mega general insurance groups,
Tokio Marine Group, MS&AD Group and NKSJ Group
who account for around 85% of industry-wide total assets.
The top five insurers by premium income are Japanese
companies and account for more than 80% of the general
insurance premium in the Japanese market.
The use of the internet as a distribution channel has
proven successful for internet based insurers. Larger
market players have taken note of this innovation and
have adjusted their pricing strategies.
Foreign companies tend to focus on specific market such
as cancer insurance or medical insurance, and have been
successful due to the uniqueness in the product lines and
brand value.
Key players
Japan
49
Contacts
PwC in the market
Takashi Idesawa
Insurance Industry Leader Partner
takashi.idesawa@jp.pwc.com
+8190-6491-3663
Takaaki Ino
Abhijit Mukhopadhyay
Insurance Advisory Consulting
Partner
abhijit.a.mukhopadhyay@jp.pwc.com
+8180-4660-3967
Jeffrey Adams
Insurance Assurance Partner
Insurance Advisory Consulting
Partner
takaaki.ino@jp.pwc.com
+8190-6486-3372
jeffrey.c.adams@jp.pwc.com
Sachihiko Fujimoto
Masahiro Komeichi
Financial Service Tax Partner
Insurance Advisory Deals Partner
sachihiko.fujimoto@jp.pwc.com
+813-5251-2400
masahiro.komeichi@jp.pwc.com
+8180-3759-6215
+8180-3317-6965
Japan
50
51
The insurance industry provides non-life, life and type 3
insurance (a contract that promises the payment of
stipulated money and other benefits to the insured for
any disease, injury or nursing thereof for the purpose of
guaranteeing any risk, in exchange for consideration) to
individuals, households and businesses in South Korea. A
person who intends to run an insurance business shall
obtain a license from the Financial Services Commission
(FSC) according to the types of insurance business
stipulated in the article 4 of the Insurance Business Act.
The purpose of the Act is to contribute to the sound
development of insurance business and the balanced
development of the national economy by ensuring the
sound management of insurance business operators and
by protecting rights and interests of policyholders, the
insured and other interested persons. In addition, the Act
stipulates that requirements for the authorization of
insurance business, asset management, and capital
adequacy. Insurance contracts written by the government
are regulated by the specific Acts of the
National Assembly.
Korea
The life insurance industry is responsible for the national
welfare of the public interest and accounts for a
significant portion of the national economy. The
insurance industry is regulated by the insurance business
law, the commercial law, the regulation on supervision of
insurance business, and other laws.
The Financial Supervisory Service (FSS) was established
on January 2, 1999, under the Act on the Establishment
of Financial Supervisory Organizations with the primary
role being to examine and supervise financial
institutions, but may also perform oversight and
enforcement functions as charged by the Financial
Services Commission and the Securities and
Futures Commission.
52
and taxation
Financial reporting
requirements
Insurers have adopted IFRS for financial reporting,
including IFRS 4 Insurance Contracts. Regulatory
reporting is performed with reference to IFRS, the
insurance business law, regulations on supervision of
insurance business, detailed regulations on supervision
of insurance business (Chapter 4 Insurance accounting
offers detailed Korean insurance accounting practice),
supervision manual for FSS, and other regulations.
Taxation
Insurers are liable for corporate income tax under the
Korea Corporate Tax Act. The tax rate applied is 10% for
taxable income below two hundred million, 20% between
two hundred million and twenty billion, and 22% over
twenty billion. The taxation structure applied for insurers
is identical to other industry, except on the deduction
of reserves.
Capital regime and
requirements
A risk based capital (RBC) regime for life and non-life
insurers commenced in April 2011. The risks are
classified into insurance, interest, credit, market and
operation risks and solvency requirements are assessed
against the capital to address those risks. In its
supervisory role, the FSC can intervene when the RBC
ratio falls below a minimum threshold.
The average RBC ratio for non-life insurers is at a sound
276.7%. However, there are significant differences for the
ratio between the big four companies (317.0%) and smalland medium-sized companies (154.3%).
The average RBC ratio for the life insurance sector is
311.2% (as of 30 Jun 2012) and has increased by 1.8%
compared to previous quarter, but that of bank owned
insurers focused on the bancassurance channel is 179.7%
and has decreased by 15.8% on the previous quarter.
Korea
53
Products
Under insurance business law insurance products are
classified as non-life, and under commercial law they are
classified as non-life and personal insurance.
According to the Insurance Business Act, non-life is
classified as fire, maritime, automobile, surety,
reinsurance, liability, technology, title, pilferage, plate
grass, nuclear, and weather. Long-term and automobile
insurance were the main traditional non-life insurance
products, but recently on-demand products,
complementary products for national health insurance
and automobile insurance sold by on-line channels are
gaining popularity.
Personal insurance is classified as life and annuity as well
as accident type insurance covering injury, disease and
long-term care. The aging population and low birth rates
in Korea have slowed down the growth of the life
insurance market. Sales by on-line channels have
increased, and there are trends toward simplifying the
products and increasing awareness and coverage.
Headline market statistics and
commentary (2011)
Korea
54
Drivers
Non-life Insurance
Life Insurance
Non-life insurers’ net income in 2011 is KRW18,155
billion and has increased by KRW 7,047 billion(63.4%)
compared to 2010.
Life insurers’ Premium Income is KRW87.8 trillion and
has increased by KRW4.8 trillion KRW (5.8%). Earned
premiums have increased by KRW8 trillion(18.3%)
compared to 2010 due to long-term insurance and the
savings contracts showed 52.1% growth rate.
New government measures to introduce a fixed rate for
deductibles and apply commission restrictions have led
to an improvement in the loss ratio and the expense ratio
for the auto insurance sector.
Domestic life insurers focused on selling savings contracts
and has grown by 4.4%, but foreign life insurers focused
on assurance and variable products and showed negative
growth due to decrease in premium income.
Some domestic life insurers have exposures to real estate
Project Financing (PF) loans. Although the outstanding
balances on these loans have been decreasing, the nonperforming ratio for these loans is 12.5% compared to the
overall non-performing loan ratio across mortgage loans
in Korea is 1%.
An insurance company may commence its insurance business by obtaining a license from the FSC and putting up
capital or fund of not less than KRW30 billion. The initial capital requirement is relatively high by global standards.
The FSC also has powers to restrict the license or insurance business for example in limiting the number of
sales people.
Foreign insurers need to understand the Korean business environment to succeed.
Korea
55
Key issues
Future outlook
Margin pressure on saving products: Even though
investment returns and market interest rates have
reduced with the declining investment market, saving
contract sales have continued to increase in FY2011.
Insurers are maintaining higher crediting rates in order
to compete, which is likely to lead to lower profit margins
on savings contracts.
 Impact of free trade agreement with the US on
domestic insurance industry: After a 2-yearg race
period ending in March 2014, branches and joint
companies of US can be more competitive in terms of
insurance products and services with the
customer information
As the bancassurance distribution channel grows in
importance, the impact of the banking industry on the
product development and distribution remuneration may
impact insurer business models and
product propositions.
Korea
 Amendments to the insurance business law
 The FSC has sponsored a task force to make
recommendations on how to improve the conduct of
insurance. The amendments to the insurance business
law will become effective in the first half of 2013 and
will include measures to strengthen the investigation
on claims payment for indemnity insurance, mobile
phone insurance and preventing unfair subsidies
to subsidiaries.
56
Non-life Insurance
Life Insurance
For local non-life insurance market structure, the top five
companies consist of more than 80% of market share. But
the market concentration is becoming lower due to
Bancassurance channel of small and medium-sized nonlife insurers
Top three companies consist of 60% of market share and
other 23 companies are running the business. As NH Life
Insurance entered the market, it is ranked as 4th in the
industry and its presence has triggered competition.
Small and medium-sized non-life insurers focus on the
ages between 20 and 30, and price discount strategy, but
big non-life insurers concentrate on high prices and high
value-added products with brand power and high quality
of services.
From the beginning of 2000, foreign life insurers have
grown rapidly with advanced financial products and
practices. But the market share has been lowered since
the 2008 global financial crisis and showed negative
growth compared to 2010. Domestic insurers have
benchmarked advanced financial practices and focus on
assurance products weakened competitiveness.
Key players
Korea
57
Contacts
PwC in the market
Sei-Youn Jung
Chang-Ho Kang
Assurance Partner
Consulting Partner
+ 82 2 709 0681
seiyjung@samil.com
+82 2 3781 9631
Hoon Jung
Jong-Seok Kim
Tax Partner
Deal Business Partner
+82 2 709 3383
hoonjung@samil.com
+82 2 709 8192
jsk@samil.com
chokang@samil.com
Hong-Yong Lee
Actuarial Senior Manager
+82 2 709 0441
hyonglee@samil.com
Korea
58
59
The insurance and takaful (Islamic insurance) industry is
governed by the Insurance Act, 1996 (“IA”) and Takaful
Act, 1984 (“TA”) respectively. Both the IA and TA provide
the legislative framework for improving the supervision
and regulation of the industry in terms of operational and
financial discipline, transparency of policies and
practices, and protection of policyholders. The IA and TA
empower Bank Negara Malaysia (“BNM”) to issue
guidelines, circulars, notices or codes to facilitate its
administration of the IA and TA.
Licences for insurers and takaful operators are issued by
the Minister of Finance on the recommendation of BNM.
Depending on the terms of its licence, an insurer can
provide all classes of life and general insurance cover, but
cannot participate in non-insurance related business.
An insurer with a takaful licence is allowed to provide
takaful products.
Malaysia
All licensed insurers and takaful operators are required to
be public companies (limited liability companies owned
by shareholders), except for professional reinsurers
which are allowed to remain as foreign branches.
The offshore insurance industry is governed by the
Labuan Financial Services Authority. The offshore
insurance business is transacted in foreign currency, and
includes life, general, reinsurance, captive insurance,
insurance manager, underwriting manager and insurance
broking, but does not include domestic
insurance business.
60
and taxation
Financial reporting
requirements
For the purposes of financial reporting, the insurers
and takaful operators in Malaysia adopt the Malaysian
Financial Reporting Standards (“MFRS”) Framework
which is compliant with the International Financial
Reporting Standards (“IFRS”) for the financial period
beginning 1 January 2012. BNM also issues certain
guidelines on financial reporting for the insurers and
takaful operators. The valuation basis of general and life
insurance liabilities is prescribed in the RBC Framework
and complies with the requirements of IFRS 4 –
Insurance Contracts.
All insurers and takaful operators in Malaysia must
submit two distinct sets of financial statements:
 annual financial statements to shareholders under
the Companies Act, 1965
 returns to BNM under the Insurance Act, 1996 and
the Takaful Act, 1984.
Taxation
The principal tax in Malaysia is income tax. There is no
capital gains tax except for real property transactions.
Other taxes include sales tax, service tax, stamp duties
and other miscellaneous indirect taxes.
Income of the insurance business of a tax resident is
subject to tax on a worldwide basis, whereas a nonresident insurer is taxed on the income accruing in or
derived from Malaysia. There are special rules for
determining the profits assessable on resident and nonresident insurance companies, depending on the type of
insurance business transacted in Malaysia.
The life insurance fund is taxed at the income tax rate of
8% whereas the general insurance fund and shareholders’
fund are taxed at the income tax rate of 25%.
Currently, there is plan to introduce Goods & Services
Tax (“GST”) in Malaysia. Based on the current proposals,
insurance products are expected to be tax-exempted from
GST and hence will not be entitled to input tax
credit claims.
Capital regime and
requirements
Licensed local insurers are required to maintain a
minimum paid-up share capital as follows:
 Direct insurance business: RM100 million
 Local reinsurer (life): RM50 million
 Local reinsurer (general): RM100 million.
Licensed foreign reinsurers are required to maintain a
minimum surplus assets over liabilities of RM20 million.
The Risk-Based Capital (“RBC”) Framework which was
implemented from 1 January 2009 applies to all insurers,
including reinsurers, licensed under the Insurance Act
1996.Each insurer must set its own individual target
capital level (agreed by BNM) to reflect its own risk
profile. The individual target capital level must be higher
than the supervisory target capital level of 130%.
The RBC Framework for takaful operators will be
effective from 1 January 2014.
Malaysia
61
Products
The main underwriting businesses for general insurance
are motor, fire and medical and personal accident
policies. Based on the BNM statistics for 2011, motor
business, the largest segment, accounts for 46% of the
general insurance industry gross premium income,
followed by fire at 17% and medical and personal accident
at 14%.
Life insurance covers whole life, endowment, temporary,
investment-linked and annuity policies. Based on the
BNM statistics for 2011, temporary (or term life) policies
accounts for 43% of the distribution of sum insured in
force of the life insurance industry, followed by
investment-linked at 23% and whole life at 20%.
General insurers depend on independent agents and
insurance brokers for their underwriting. Agents cater for
personal line policies while brokers concentrate on
commercial customers. There are more than 35,000
independent agents and 33 insurance brokers servicing
general insurers nationwide as of December 2012.
General agents are required to be registered with the
mandatory insurance association namely Persatuan
Insuran Am Malaysia (“PIAM”). Licences for insurance
brokers are issued by BNM.
Life insurance is sold through direct sales force, direct
selling and independent agents. There are more than
83,000 independent life agents as of December 2012 who
are required to be registered with Life Insurance
Association of Malaysia (“LIAM”).
Insurers are increasingly using banks to market and
distribute their products. Banks offer convenience to
customers by processing insurance policies together with
banking transactions such as mortgage reducing term
assurance, home mortgage with fire policy, hire purchase
loan with motor vehicle policy and trade financing with
marine cargo policy.
Malaysia
62
Drivers
General Insurance
Life Insurance
Takaful
The growth in general insurance was
mainly driven by the growth in
motor, fire, marine, medical and
personal accident businesses.
The growth in life insurance was
mainly spurred by the growing
demand for investment-linked,
medical and health products at a
compound rate of 9.6% in the last 10
years.
Consistent with the general insurance
sector, the growth in general takaful
was mainly driven by growth in
motor, marine and personal accident
businesses. However, the annual
growth (at a compound rate of 20% in
the last 10 years) is higher than the
conventional sector in view that it has
a lower base as compared to the
latter.
The dominant motor sector
commands 55% of total net premium
income. However, the Motor Act
sector remained unprofitable with the
claims ratio rising to a record high of
296%.
The second most dominant sector is
the fire insurance business (17% of
total net premium income). This is
consistent with the continuing
importance of real estate in the
Malaysian economy.
However, the fastest growth sector
remains to be medical insurance at an
annual rate of 12%. This can be
attribute to greater disposable
income and awareness by the public.
However, the volatile financial
markets and persistent low yields
were a drag on profitability amid the
continued search for reasonable
investment returns.
The lower profitability was mainly
driven by:
 investment losses which
substantially reduced the net
capital gains (realised and
unrealised); and
 higher net benefit payments
mainly attributed to medical
claims and bonuses paid.
The growth in family takaful was
mainly spurred by the growth in
temporary policies relating to
mortgages sold via the main
distribution channel of bancatakaful.
The takaful industry was also exposed
to the volatile financial markets and
persistent low yields which put
pressure on the investment income.
Currently, there is a freeze on the issue of new insurance licences by BNM, although BNM may be open to consider
applications on a case-by case-basis.
Currently, there is a 70% limit on foreign equity owners. However, a higher equity limit beyond 70% will be considered
by BNM on a case-by-case basis for players who can facilitate consolidation and rationalisation of the industry.
As Malaysia seeks to position itself as a regional Islamic financial services hub, the possibility of new entrants to the
takaful sector appears to be more realistic, subject to them having the required credentials in Islamic finance. BNM
may be open to consider applications on a case-by case-basis.
Malaysia
63
Key issues
 Revisions to the BNM’s Risk-Based Capital (“RBC”)
Framework – The revisions were made in May 2011. It
is meant to converge the valuation rules under
pinning the determination of regulatory capital with
the Financial Reporting Standards. Further
enhancements are being made to the RBC framework.
 Amongst the areas are: (a) Refinement of valuation
methodology for life insurance liabilities and
reinsurance arrangements; (b) Ensure consistency
between current capital buffers provided under the
RBC framework and (c) Implementation of more
robust internal capital management processes for
insurers.
 A new risk-based capital framework for takaful
operators – It will be effective from 1 January 2014.
 BNM issued guidelines on an internal adequacy
assessment process (“ICAAP”) for conventional
insurers – It is effective from 1 September 2012.
 The Competition Act 2010 – This is effective on
1 January 2012 and it introduced a new motor cover
framework addressing pricing distortions and
inefficiencies in the claims settlement process.
It allows for gradual adjustments to the premium
levels and will be phased in over a four-year period.
 Personal Data Protection Act, 2010 – The Act is
expected to be implemented in 2013 and could pose
significant challenge in the availability of customer
data for cross-selling purpose in the direct
marketing/telemarketing business.
 Splitting of composite license into non-life/general
takaful and life/family takaful businesses within a
5 year grace period – This is based on recent
regulatory/industry developments. There are
potential merger and acquisition opportunities when
the shareholders of existing composite licensed
operators potentially seek to dispose either licenses
or a tie-up with a strategic partner.
Malaysia
64
Future outlook
General Insurance
Life Insurance
Takaful
The outlook is positive based on the
following factors:
The outlook is positive based on the
following factors:


The outlook is expected to be positive
based on the following factors similar
to the conventional general and life
insurance industry.





Malaysia’s GDP growth is expected to
grow 5% to 6% – The expansion of the
Malaysian general insurance segment is
correlated closely to GDP and
disposable income. The main growth
areas are expected to be from the
services and manufacturing sectors. It
is expected the gross premium income
will increase to RM17.5b by 2015.
Positive impact of government
economic policies – Government
initiatives like the Employee Insurance
Scheme, Private Pension Scheme and
the Foreign Workers Health Insurance
Scheme will incentivise players to
develop new product offerings and
increase the depth in the market. In
addition, introduction of the 1Malaysia
Micro Protection Plan will not only
provide insurance coverage to small
businesses enterprises but also raises
the penetration rate of insurance in
Malaysia.
Bright outlook for motor insurance
players – Motor premium revenue will
continue its growth given the premium
tariffs are being revised (for the first
time in 30 years) gradually over 4 years,
and insurers are now adopting
premium loading on older cars and
commercial vehicles. In addition, better
profitability from this segment is
expected as the industry offloads the
unfavourable motor risks to Malaysian
Motor Insurance Pool.
Growth in medical and personal
accident insurance is expected to be
fastest – This is in line with greater
public awareness and higher disposable
income.
Rates stabilisation for the large and
specialised risks (“LSR”) and project
engineering category – However the
segment is expected to benefit from
government’s mega infrastructure
projects.
The number of general insurers is
expected reduce gradually as the
industry consolidates further.
Malaysia




Malaysia’s GDP growth is
expected to grow 5% to 6% – Total
life new business premiums are
expected to grow 7% to 10%.
economic policies – The
introduction of the Financial
Sector Blueprint (2011 – 2020) by
BNM which focuses on retirement
planning and healthcare solutions
coupled with tax incentives are for
private pension plans is likely to
accelerate development of the
private pension market in
Malaysia. Life insurers are
provided the opportunity to play a
key role in this segment by
introducing new products like
annuity plans for retirement
needs.
Vast untapped market with the
current low market penetration of
43% – This segment will benefit
from the rising per capita income
of the population and new and
innovative products introduced by
insurance companies.
Escalating costs of medical and
healthcare services – This spurs
the growth in health and medical
products as public becomes more
aware and realise the benefits of
life insurance products. This
encourages people to purchase
additional life insurance policies
for their post-retirement period.
Current low interest rate
environment – It makes
purchases of life insurance
products attractive as it carries
relatively high yield and yet stable
returns.

The outlook for takaful business is
expected to be good given
Malaysia’s predominant Muslim
population and its penetration
rate at a mere 10% compared to
the conventional at 43%.

The takaful business is also
witnessing strong growth
momentum. A growth of 15% to
20% is expected for the family
takaful but a growth of 10% to 12%
is expected for the general takaful
segment.

economic policies – The
government is very keen in
developing the Takaful market in
Malaysia. A number of Takaful
related initiatives have been
enshrined in the introduction of
the Financial Sector Blueprint
(2011 – 2020) by BNM. Some of
the recommendations are:
-
Issue of new takaful licences to
institutions with specialised
expertise.
-
Promote the use of takaful and
risk management tool in
Islamic finance transactions.
-
Encourage greater
involvement of takaful brokers
to broaden the range of takaful
product offerings and outreach
by extending Malaysia
International Islamic Finance
Centre (“MIFC”) incentives.
-
Facilitate greater injection of
foreign expertise in takaful
broking and loss adjusting
industries to better support
takaful business.
-
Encourage international
players to establish retakaful
operations in Malaysia.
65
The Malaysian insurance market comprises 57 insurers and takaful operators as of 31 December 2012, of which
9 write life business only, 19 write general business only, 6 composite insurers, 7 reinsurers, 12 takaful operators and
4 retakaful operators.
The offshore insurance market comprises 4 life insurers, 9 general insurers, 2 composite insurers, 38 captive insurers,
39 reinsurers and 74 insurance brokers as of 27 December 2012.
General Insurance
Life Insurance
Takaful
The general insurance industry is still
relatively overcrowded, with the top
10 of the 25 insurers commanding
65% of the market share in gross
premiums in 2011, many of whom are
primarily motor insurance
companies.
The life insurance sector is
considered to have high level of
concentration as it is currently
dominated by a few key players, most
of whom are household names
regionally/globally. The top 5 of the
15 life insurers commanded a market
share of 71% in terms of gross
premiums in 2011.
The takaful industry is growing, and
currently, it is dominated by the
pioneer takaful operators namely
Syarikat Takaful Malaysia Berhad
and Etiqa Takaful Berhad which
commanded a market share of 60%
in terms of gross contributions in
2011.
Other than the overcrowded market,
this sector is less attractive due to the
lower underwriting margins,
especially in the dominant motor
insurance class. However, there are
opportunities in personal line classes
such as personal accident and
medical/health, and niche sectors
such as marine cargo.
Consistent with BNM’s vision of
consolidating the conventional
insurance industry, the number of
general insurance players has
gradually reduced over the last
decade, and further consolidation is
expected in the near future. This is
encouraged and achieved via a
combination of incentives such as tax
and stamp duty exemptions,
regulatory measures such as
increased capital requirements and
the cessation of issuance of new
licences.
Malaysia
The key players are comparatively
better resourced and well-marketed
compared to the medium/small
insurance players who continue to
struggle to grow their new business.
As part of the Government and
BNM’s initiative to develop Malaysia
as a leader in the takaful market, 4
new takaful licences were issued in
2011 to attract leading global players
to establish a presence in Malaysia by
partnering Malaysian companies.
These 4 new takaful operators are
AIA AFG Takaful Bhd, AmFamily
Takaful Berhad, Great Eastern
Takaful Sdn Bhd and ING PUBLIC
Takaful Ehsan Berhad.
There is intense competition to the
conventional insurance players with
the introduction of takaful operators,
which meets the prevailing needs of
the Muslim population for a Shariahcompliant takaful products.
66
Key players
Malaysia
67
Contacts
PwC in the market
Soo Hoo Khoon Yean
Financial Services Industry Leader
PwC Malaysia
+60 3 2173 0762
khoon.yean.soo.hoo@my.pwc.com
Lim Phaik Hoon
Senior Executive Director
+(60) 3 2173 1535
phaik.hoon.lim@my.pwc.com
Malaysia
68
The insurance industry provides general and life
insurance to New Zealand individuals, households and
businesses. Under the Insurance (Prudential
Supervision) Act 2010, all insurers must be licensed.
The legislation is currently being phased in, with all
existing insurers having to be at least provisionally
licensed, and fully licensed by 7 September 2013. Some
sections of the old Life Insurance Act 1908 are still in
force; they cover assignment of policies, interest payable
on death claims, non-forfeiture provisions and the
insurance of minors.
New Zealand
The Reserve Bank of New Zealand is the regulator of the
insurance industry.
Savings and investment products sold by insurers are
classed as securities and therefore need to comply with
securities legislation. This is regulated by the Financial
Markets Authority (FMA).
70
and taxation
Financial reporting
requirements
Capital regime and
requirements
Financial reporting requirements are set by the New
Zealand External Reporting Board (XRB). Accounting
and financial reporting requirements are defined through
New Zealand GAAP, in particular through the NZ
equivalent to IFRS 4 (NZ IFRS 4). All insurers are
“issuers”, as defined by the Financial Reporting Act 1993,
which means they have to be fully compliant with IFRS
standards.
There is a minimum capital requirement of $5m life and
$3m non-life. Insurers must maintain a solvency margin
of at least zero at all times, and three-year forecasts must
indicate that this will be maintained. The definition of
“solvency margin” is the margin of Actual Solvency
Capital above Minimum Solvency Capital. The Minimum
Solvency Capital requirement is made up of prescribed
capital charges relating to various risks:
Appendix C of NZ IFRS 4 applies to life insurers and
follows the Margin on Services methodology, whereby
profit is released in line with the provision of service over
the life of the insurance contract. It is largely consistent
with AASB 1038 in Australia. The standard also applies
to health insurance contracts sold by life insurers.
 Insurance Risk
Appendix D of NZ IFRS 4 applies to non-life insurers.
It is largely consistent with AASB 1023 in Australia.
Premium revenue is earned in line with the pattern of
risk, and claims are reserved for on the basis of a central
estimate plus a risk margin, while acquisition expenses
are deferred and amortised over the life of the contract.
New Zealand is likely to adopt the new insurance
accounting standard once that is issued by the IASB.
 Catastrophe Risk (for life insurance this includes
pandemic risk)
 Credit, Property and Equity Risk
 Foreign Exchange Risk
 Interest Rate Risk
 Asset Concentration Risk
 Reinsurance Risk.
Taxation
New Zealand insurance companies are assessed under the Income Tax Act 2007 and the Goods and Services Tax
Act 1985.
Non-life
Life
 Company tax is based on profits, but with upfront
deductibility of acquisition costs
 Company tax based on a two-tier system for
shareholders and policyholders.
 Special tax rules exist for the taxation of
investment income
 Shareholder tax is based on premiums less claims,
with upfront deductibility of acquisition costs
 GST is charged on premiums but deductible on claims
 Policyholder tax is based on an allocation of
investment income attributable to policyholders,
and claims received in the hands of policyholders are
generally tax free
 Fire Service levy
 Earthquake levy.
 Special tax rules exist for the taxation of
investment income.
The provision of life insurance contracts represents an exempt supply for GST purposes, provided the contract places
sums at risk upon death or survival. GST will apply to non-life contracts sold by life insurers.
New Zealand
71
Products
The general insurance sector offers a full range of risk
products to New Zealand households and businesses,
including personal, commercial, marine, rural, travel,
and professional indemnity lines.
Insurance for natural disasters is in part met by the stateowned Earthquake Commission (EQC). The EQC only
covers domestic residences which hold private insurance;
it does not provide cover for businesses. The EQC is
funded by levies on insurance premiums paid to private
insurers. Any claims payout is limited to the first
$100,000 plus GST (goods and services tax) of any
individual claim, with any amount above that covered by
the insurance company holding the policy.
Comprehensive compulsory no-fault accident insurance
is provided through the government agency, the Accident
Compensation Corporation.
General insurance products are distributed by brokers
and agents, banks, the internet, and direct.
The life insurance sector provides term life, trauma, TPD,
and disability income cover to both individuals and
groups. In addition, some life insurers continue to hold
large portfolios of traditional endowment and whole-oflife business which have been closed to new business.
Some life insurers also offer superannuation, retirement
and investment-style products. Some also have
significant funds management businesses, including
Kiwisaver (a work-based voluntary retirement savings
initiative implemented by the government). New Zealand
has a very small annuity market. Distribution of life
products is still dominated by the brokers and aligned
adviser channels. Bancassurance is continuing to grow,
while the direct and online markets are in their infancy.
Overall, the insurance industry is in the mature stage of
the life-cycle.
New Zealand
72
Drivers
Performance trends are being driven by the factors affecting the general economy in New Zealand and continued
economic pressure is expected.
Non-Life insurance
Life insurance
Claim settlement issues arising from the 2010 and 2011
Christchurch earthquakes. Property insurers have
incurred substantial claims costs and the volume and
complexity of evaluating claims has meant they are not
being settled as quickly as the industry would like. This
was a significant issue in 2011 but has had less impact in
2012 as most of the claims have been reserved already,
with only the most significantly affected areas still
outstanding.
The life insurance market is struggling to increase
premium revenue growth. In the current economic
climate, households are focusing on reducing personal
debt has led to a struggle for the life insurance sector.
Limited growth is coupled with increasing competition.
General insurers have seen a strong growth in premiums
in the current year, but are contending with higher
reinsurance costs as a result of the earthquakes.
Historically New Zealanders have insured their homes on
full replacement cost, but it is speculated that many
insurers will move to a sum-insured model in the future.
This will represent a fundamental change which general
insurers will need to effectively communicate to
policyholders.
Vero, State, AMI and NZI will follow AA Insurance to
switch their house insurance policies to ‘sum insured’
from replacement value as a result of the Christchurch
earthquakes in a big change for the industry. The move
will shift the onus to understanding the cost of rebuilding
from insurer to homeowner requiring homeowners to
have a clear understanding of likely rebuild costs on the
purchase or renewal of their policies. This change is being
driven by reinsurers who want to have a clearer view of
their natural disaster risk and the need to keep house
insurance affordable.
Recent Financial Services Council research9 has
discovered that:
 New Zealanders appear to place greater value on
protecting their assets than on protecting their lives,
household income and their family’s future
 More than 95% of homes and cars are insured, but
only 57% of New Zealanders insure their lives and
barely 20% have income protection insurance
 60% of New Zealanders were characterised as finding
personal insurance “all too hard”
 Jargon used by the insurance industry and the
complexity of the products on offer often make it hard
to understand exactly what is being delivered and
what is value for money.
(Sunday Star-Times, 9 December 2012).
 Must be licensed by Reserve Bank of New Zealand and meet ongoing licensing requirements
 Must maintain a solvency margin at all times
 Minimum capital requirement of $5m life, $3m non-life
 Directors and key management must meet “fit and proper” requirements.
9
Financial Services Council Annual Review 2012
New Zealand
73
Key issues
Christchurch earthquakes: the affordability of insurance
is a key industry issue on the back of large increases in
premium costs in virtually all sectors over the last 18
months (premiums increased to offset the increase in
reinsurance costs following the Christchurch events).
According to the Insurance Council, the Christchurch
earthquakes have created a permanent shift in the
insurance market; for example:
 It is now more difficult to insure older buildings for
replacement. The cost of insurance has risen
dramatically and is likely to continue increasing.
 Significant levels of under-insurance were exposed,
particularly in the commercial sector. The main
reason for this was outdated property valuations.
 There is a growing concern that increases, for example
to the earthquake levy, will see affordability issues
arise and a potential reduction in the levels of
insurance.
Funding of the Fire Service: the industry has asked the
Government to reduce the cost on households by ending
the Fire Service levy on insurance premiums. The
Government is reviewing funding of the Fire Service and
a number of recommendations have been released earlier
this year. Whilst there is still a degree of consultation and
review to take place initial indications are that the levy
will continue to be collected through insurance premium.
Further consultation is expected over the course
of 2013.10
Linking of traditional boundaries
between life insurers and financial
markets
The Financial Services Council (previously the
Investment, Savings and Insurance Association)
represents certain investment and life insurance
companies in New Zealand. During 2011 the members
overwhelmingly agreed that the earlier loss of confidence
in the financial services sector and the move to
principles-based rather than industry-specific regulation,
as well as the fallout from the global financial crisis,
made a unified, effective financial services sector
organisation a priority.
Tax: Life insurers are in a transitional phase in relation
to a new (since 2010) tax regime. A five-year transition
period applies for most policy types provided the policy
was in force at 30 June 2010. As new policies are sold
and transitional relief stops for old policies, it is
envisaged that life insurers will pay significantly more
income tax than under the old life insurance tax regime.
Regulatory changes: The insurance industry is facing
greater scrutiny through changes in regulation: in
particular, the staged implementation of the Insurance
(Prudential Supervision) Act 2010, which requires all
insurers to have a full licence by 7 September 2013.
Financial Advisers are now governed under the Financial
Advisers Act which requires them to have certain
qualifications as well as certain processes in place when
interacting with their clients. Another issue on the
horizon is anti-money-laundering legislation. All insurers
selling savings products will have to be in compliance
with this by 30 June 2013. Although certain exemptions
are expected for general insurers who sell risk-based
insurance, it is expected that some life insurers who sell
life products with an investment element will need to
comply with new FATCA (Foreign Account Tax
Compliance Account) rules imposed by the United States.
Role of technology in insurance: Many insurers are faced
with the challenge of changing technology in relation to
improving claims management, distribution platforms,
policy administration systems and data storage.
AMI takeover by IAG: AMI is a key player in the general
insurance market in New Zealand. In April 2012 IAG
obtained regulatory approval from the Reserve Bank to
complete its acquisition of New Zealand’s AMI’s
insurance business. AMI had significant exposure to the
Christchurch earthquakes which has now been taken over
by the New Zealand government in the acquisition deal.
10 Scoop.co.nz, 9 August 2012
New Zealand
74
Future outlook
General
Life
Regulatory environment
Sales growth
The new regulation is likely to have a noticeable impact
on the industry, particularly regulations regarding the
level of capital insurers need to hold. With
implementation of the Insurance (Prudential
supervision) Act 2010, the Reserve Bank of New
Zealand aims to ensure financial strength of insurance
companies by applying prudent supervision on various
areas. There is a move by the Reserve Bank towards a 1
in 1000 year event return period to model catastrophe
events. (AM Best. Reactions Nov 2012)
Convincing New Zealanders that insuring themselves is
just as important, if not more important, than insuring
other assets is expected to remain an ongoing challenge
for life insurers.
Technology
Technology platforms such as Life Direct are making
pricing comparisons quicker and easier for consumers
to both choose and change their products. This is
expected to lead to diminishing client loyalty. It is also
expected that traditional marketing methods will be
challenged by social media and consumers will be
influenced by information available online.
Life insurance companies are struggling to get sales
growth with households having to pay more for their
house insurance and a national focus on paying down
debt. Figures released by the Financial Services Council
show total annual in-force premiums for ordinary term
life insurance rose just 2% in the past quarter.11
Low levels of life insurance
The penetration rate of life insurance as a percentage of
GDP is very low in the New Zealand market according to
Gordon Watson, AIA Group regional managing
director12. He is bullish on growth opportunities.
11 Dominion Post, 12 December 2012
12 Scoop.co.nz, 29 October 2012
New Zealand
75
The insurance market in New Zealand is considered to be competitive to highly competitive. Insurance in New Zealand
is provided by around 100 companies which vary in the types of products they provide as well as in their size and
ownership13. A significant number are branches of overseas-based companies. There are also several smaller insurers,
which highlights the existence of profitable niches.
Key players
13 Reserve Bank of New Zealand, Supervision of the Insurance Industry, November 2012
New Zealand
76
Contacts
PwC in the market
Bruce Baillie
David Lamb
Partner
Partner – Insurance Leader
+64 9 355 8043
bruce.baillie@nz.pwc.com
+64 9 355 8149
david.lamb@nz.pwc.com
Michele Embling
Paul Rhodes
Partner
Partner
+64 9 355 8543
michele.j.embling@nz.pwc.com
+64 4 462 7075
paul.m.rhodes@nz.pwc.com
Lisa Crooke
Daryl Eady
Partner
Partner
+64 9 355 8143
lisa.g.crooke@nz.pwc.com
+64 9 355 8215
darryl.b.eady@nz.pwc.com
Karl Deutschle
Partner
karl.p.deutschle@nz.pwc.com
New Zealand
77
78
The Philippine insurance industry provides general and
life insurance to Filipino individuals, households and
businesses. A number of players are engaged in both
general and life insurance which includes health,
accident and disability insurance.
No insurance company shall transact any insurance
business in the Philippines until after it has obtained a
certificate of authority for that purpose from the
Commissioner upon application and payment by the
company of the fees prescribed by the Code.
The insurance industry in the Philippines is regulated
by the Insurance Commission (IC) of the Philippines
which is a government agency under the Department of
Finance. The IC is mandated to regulate and supervise
the insurance industry in accordance with the
provisions of the Insurance Code of the Philippines
(the Code”) in order to ensure that adequate insurance
protection is available to the public at a fair and
reasonable cost and to assure the financial stability of
the insurance industry so that all legitimate claims of
the insuring public are met promptly and equitably.
Also, it issues licenses to insurance agents, general
agents, resident agents, underwriters, brokers, adjusters
and actuaries. It has also the authority to suspend or
revoke such licenses.
Republic Act No. 68 or The Corporation Code of the
Philippines (1980) governs the creation, activities and
dissolution of corporations in the Philippines including
insurance companies.
Philippines
Insurance Companies doing business in the Philippines
that are incorporated under the laws of the Philippines
are governed by the rules and regulations of the
Insurance Commission and the Philippine Securities and
Exchange Commission (SEC).
79
and taxation
Financial reporting
requirements
IC
As required by the Code, every insurance company shall
submit annually on or before the 30 April its annual
statement signed and sworn to by the Chief officer. This
statement is prepared in accordance with the uniform
chart of accounts for insurance companies (Circular
Letter No. 33-2006 and No. 34 – 2006). All insurance
company issuing, delivering or using variable contracts
shall annually file with the Commission a separate annual
statement of its separate variable accounts. Such
statement shall be on a form prescribed or approved by
the Commissioner and shall include details as to all of the
income, disbursements, assets and liability items of and
associated with the said separate variable accounts.
SEC
Insurance companies engaged in insurance business in
the Philippines which are incorporated under the laws
of the Philippines are required to submit its audited
financial statements to Securities and Exchange
Commission (SEC) within the filing period as
determined by the SEC. The financial statements of
insurance companies in the Philippines shall be
prepared in accordance with Philippine Financial
Reporting Standards (PFRS), the local counterpart of
the International Financial Reporting Standards
(IFRS).
Capital regime
and requirements
The existing capitalization requirements for foreign
insurance companies is P1 billion (US$24.4 million) net
worth and P500 million (US$ 12.2 million) paid up
capital based on Department of Finance Order 27-06. In
addition to the capital requirement, as mandated by the
Insurance Code of the Philippines, all insurance
companies doing business in the Philippines shall at all
times maintain a margin of solvency in accordance with
Section 194 of the Insurance Code.
In October 2006, the Insurance Commission issued
Insurance Memorandum Circular No. 6-2006 adopting
the Risk-Based Capital (RBC) framework for insurance
industry to establish the required amounts of capital to
be maintained by insurance companies in relation to
their investment and insurance risks. Every insurance
company is annually required to maintain a minimum
RBC ratio of 100% and not fail the trend test. The
insurance company will be subjected to the
corresponding regulatory intervention upon its failure to
meet the minimum RBC ratio.
Taxation
Insurance companies in the Philippines are subject to the
tax regulations and supervision of the Bureau of Internal
Revenue (BIR). Taxation is based on the audited
commercial accounts as adjusted according to tax rules.
Companies are taxed at the higher of the 30% regular
corporate income tax (RCIT) which is based on taxable
net income or 2% minimum corporate income tax
(MCIT) which is based on taxable gross income. The
MCIT is only applicable from the fourth taxable year of
business operations of the company.
Companies including insurance companies are generally
required to file income tax returns, value-added tax
(VAT) returns, premium tax returns (for the premiums
on health and accident insurance received by non-life
insurance companies), withholding tax returns, fringe
benefit tax (FBT) returns, and documentary stamp tax
(DST) returns. Companies are also subject to local
business tax which shall be paid to the local government
of the city or municipality where its head office and
branches are located. If the company has real property, it
is also subject to real property tax.
Philippines
80
Products
The general insurance sector (property and casualty)
offers a full range of risk products and services to
Philippine households and businesses. Some of the more
significant products include marine insurance, fire
insurance, casualty insurance, suretyship, motor vehicle,
professional indemnity, public and product liability,
travel and lenders mortgage insurance
The majority of life insurance products currently sold by
Philippine life insurers include individual and group life,
term insurance and investment-linked products. In
recent years, variable unit linked life insurance products
have gained popularity. Premium income from variable
unit linked has increased at a rapid rate of 21% in 2011
and already accounts for 45% of the total premium
income in 2011. With the intention of alleviating the lives
of the poor and the marginalized sector, microinsurance
products are also being sold in the Philippine market.
Insurance products in the Philippines are distributed by
brokers, agents, through bancassurance and direct
marketing. Bancassurance has been growing fast and
now accounts for approximately 45% of all sales in the
industry.
Philippines
81
Drivers
General insurance
Life insurance
The Philippines has been labelled one of the most
dangerous places in the world when it comes to natural
calamities. Being in the so-called Pacific Rim of Fire and
the Typhoon Belt, the country is vulnerable to earthquakes,
volcanic eruptions and super typhoons.
The life insurance industry is in a period of solid growth
driven by the robust economy.
In 2011, a total of 431 natural and human-induced disasters
were reported in the Philippines. These killed 1,774 people,
and affected more than 3 million families or 15.3 million
people, and caused over P26 billion in economic damage.
These figures earned the Philippines the top spot in the list
of countries with the most number of reported natural
disasters in 2011. According to the EM-DAT
(http://www.emdat.be/) : The OFDA/CRED International
Disaster Database, of the 302 natural disasters that
happened worldwide, 33 occurred in the Philippines and 21
in China.
Variable unit linked products are popular due to the
strong investment markets and the low interest rate
environment which make traditional products less
attractive.
The record growth in life products is also attributable to
greater financial literacy and protection awareness,
aggressive growth of the industry’s agency force, better
partnerships through bancassurance, and heightened
investment appetite.
The increase in premium income of non-life insurance
industry is to some degree due to the growing awareness of
the benefits of insurance coverage in the light of possible
calamities.
 Heightened competition: industry players consist of
34 life and 76 nonlife companies (as of December 31,
2012). The significant number of players has resulted
in fierce competition which affected premium pricing.
The life insurance sector also competes with other
financial institutions such as mutual funds and banks.
 Financial incapacity of majority of the population: life
insurance product is at the bottom of the priority list
of most Filipinos. In a study done by The Philippine
American Life and General Insurance Company (AIA),
the Philippines ranked as the lowest in Asia in life
insurance penetration rate, with only 1.1% of the
country’s total population having some form of life
insurance. Also, based on the same study, only 25% of
Filipinos believe in the concept of securing their
future and achieving their dreams through life
insurance. Despite increasing investor confidence
alongside continuous economic growth, narrowing
trade deficit, and increasing stock market values in
the Philippines, financial incapacity still remains as
the biggest hindrance to the growth of the life
insurance market in the Philippines. The same study
shows that 88% of Filipinos are actually interested to
have an emergency fund for unforeseen events, but
only 2% of them have actually secured themselves
through life insurance.
 Higher capitalization requirements: the existing
capitalization requirements (since December 31, 2011)
for foreign insurance companies is P1 billion
Philippines
(US$24.4 million) net worth and P500 million (US$
12.2 million) paid up capital based on DO 27-06. The
required capital has been gradually increasing since
2006 staring from P500 million and P250 million in
net worth and paid up capital, respectively. With over
100 companies, with a relatively few big multinational
companies and numerous medium and small-sized
domestic companies, the industry is expected to
continue to face challenges in meeting capital
requirements, particularly for smaller companies.
With the mandated boost in the minimum paid-up
capital, together with prevailing low interest rate
environment and higher reinsurance costs, many
insurance companies had to close shop. At the
beginning of 2012, there were 117 players (83 are
general insurance, 29 are life insurance, 4 composite
insurance and 1 reinsurer), by the end of 2012, the
total number went down to only 110 with general
insurance dropping to 76.
 Investment limitations: the Insurance Code requires
insurance companies invest heavily in government
securities which are safer but offer lower returns. At
the same time, insurance companies are not allowed
to invest in bonds or fixed-income securities
introduced by foreign governments or corporations.
Specifically for life insurance industry, the Code
imposes limitations on investments in real estate and
common stocks, preferred stocks and bonds of
corporations or institutions created or existing under
the laws of the Philippines.
82
Key issues
Future outlook
 The mandated stepped increase in capital
requirements for insurers, may have a larger impact
on the non-life insurance sector and could lead to
industry consolidation
 Improving insurance penetration as the national
economy and awareness of insurance grows
 There are growing calls from the life insurance
industry to remove premium tax to address the
problem of low insurance penetration rate in the
Philippines
 A bill to revise the 1974 Insurance Code of the
Philippines has been passed by the senate aimed at
strengthening corporate governance in the industry
through the introduction of a system of scorecards to
determine levels and quality of compliance.
 The full implementation of the Asean Framework
Agreement on Services (AFAS) means that the
Philippine insurance industry will be competing for
the thin local market against its counterparts from the
Association of South East Asian Nations (Asean)
 More Filipinos prefer investment-linked policies,
shunning bank products such as time deposits, as they
can get guaranteed and decent investment returns due
to the country’s good investment climate
 The introduction of new life products, particularly
VUL, and the double-digit growth of policies sold
through bancassurance are still expected to be the
leading drivers for the strong growth of the industry
 The Philippine insurance industry is ripe for
consolidation as it faces tougher challenges in terms
of increasing demand for capital, better services on
claims, threats of worsening climate change, and
intense competition.
Philippines
83
Industry players consist of 34 life and 76 nonlife companies (as of 31 December 2012). The significant number of
players has resulted in fierce competition which affected has premium pricing. The life insurance sector also competes
with other financial institutions such as mutual funds and banks.
General
Life
Relatively low levels of concentration in the general
insurance industry. The top 10 non-life insurance
companies in the Philippines contributed to 59% of the
total premium earned in 2011.
The market is moderately concentrated with 33 life
insurance companies in the Philippines, of which the top
10 companies contributed 86% of the total premium
income in 2011.
The mandated increase in minimum paid-up capital by
the Department of Finance will be a challenge to new
entrants. Also, the increasing number of natural
catastrophes in the past two years in the Philippines had
greatly impacted the general insurance industry. These
factors are evident in the declining number of players
from 88 at the beginning of 2012 to only 76 by the end of
the same year.
8 out of the top 10 life insurance companies are foreign
owned. Insular Life and UCPB are the locally owned
companies.
With the higher capitalization being imposed by the
Department of Finance, it may be harder for small players
to penetrate the life insurance industry.
Key players
Philippines
84
Contacts
PwC in the market
John-John Patrick V. Lim
Assurance Partner
+63 (2) 459 3023
john.lim@ph.pwc.com
Malou P. Lim
Tax Partner
+63 (2) 459 2016
malou.p.lim@ph.pwc.com
Sherwin S. Sampang
Director
+63 (2) 459 3025
sherwin.s.sampang@ph.pwc.com
Philippines
85
86
The insurance industry in Singapore is regulated by the
Monetary Authority of Singapore (MAS). As Singapore's
central bank and financial regulator, the MAS promotes
sustained, non-inflationary economic growth through
monetary policy formulation and close macroeconomic
monitoring of emerging trends and potential weaknesses.
MAS is an integrated supervisor overseeing all financial
institutions in Singapore – including banks, insurers,
capital market intermediaries and financial advisors. The
MAS is tasked with creating a leading financial services
sector in Singapore, and promoting a strong corporate
governance framework. The MAS also works with other
government agencies and financial institutions to develop
and promote Singapore as a regional and international
financial centre.
A Policy Owners’ Protection Scheme (PPF Scheme),
administered by Singapore Deposit Insurance
Corporation Limited (SDIC), has been set up in 2011 to
protect policy owners in the event of failure of a life or
general insurer which is a PPF Scheme member. The role
of the SDIC is to collect levies from PPF Scheme
members, manage the Policy Owners' Protection Life
Fund and the Policy Owners' Protection General Fund,
and make compensation payments.
General, life and health insurers may carry on insurance
business in Singapore as registered insurers or foreign
insurers. Registered insurers are approved under section
8 of the Insurance Act (Cap 142) (IA). They can be
registered as direct insurers, reinsurers or captive
insurers. Foreign insurers are approved under the law of
another territory to carry on insurance business in that
territory. These insurers operate in Singapore under a
foreign insurer scheme established under Part IIA of the
IA. Currently the Lloyd’s Asia Scheme is the only foreign
insurer scheme in Singapore. Authorised reinsurers are
approved under section 8A of the IA, and can provide
reinsurance of liabilities under insurance policies to
persons in Singapore. Lastly, representative offices are
approved under section 6 of the IA.
Singapore
87
and taxation
Financial reporting
requirements
Capital regime and
requirements
For both non-life and life business, the basis for an
insurer’s financial accounts is the Singapore Companies
Act and Singapore Financial Reporting Standards (FRS).
Singapore uses both FRS39 & FRS104 (based on
International Accounting Standards (IAS) 39 and
International Financial Reporting Standards (IFRS) 4,
respectively) with effect from 2005. Separate insurance
funds must be maintained for Singapore policies and
Offshore policies. For each insurance fund established in
Singapore under the Insurance Act, insurers must file
quarterly and annual Insurance Act returns with the
MAS. Such returns are prepared in accordance with the
valuation and format prescribed by the Insurance Act.
The existing capital regime in Singapore is Risk Based
Capital 1 (RBC1) and is regulated by the MAS. The
minimum paid up capital requirement for a direct insurer
involved in investment-linked policies only or short-term
accident and health policies is SGD 5m. For any other
type of direct insurer the minimum requirement is SGD
10m, and for reinsurers it is SGD 25m. Prior written
approval is required from the MAS should a registered
insurer incorporated in Singapore wish to reduce its
paid-up ordinary share capital or redeem any preference
share.
For life insurance business, both the Singapore Insurance
Fund (SIF) & Overseas Insurance Fund (OIF) must be
further segregated into separate insurance funds
maintained for participating policies, non participating
policies and investment linked policies. There is separate
accounting for policyholders and shareholders profits
within an insurers accounts. The transfer of profits out of
insurance funds is subject to regulatory requirements.
The calculation of solvency margin, or Total Risk
Requirement (TRR), is based on standard formula
calculations for 3 risk groups:
 Insurance Risks
 Market risks
 Concentration risks
The TRR of a registered insurer is the aggregate of the
total risk requirements of every insurance fund
established and maintained by the insurer under the
Insurance Act. In the case where the insurer is a
registered insurer incorporated in Singapore, it is all
assets and liabilities of the company (including any assets
and liabilities of any of the insurer’s branches located
outside Singapore).
In the light of evolving market practices and global
regulatory developments (ie Solvency II), MAS is
currently reviewing the risk-based capital framework for
insurers in Singapore.
The review (“RBC 2 review”) aims to improve the risk
coverage and risk sensitivity of the current framework
and to specify the MAS’ supervisory intervention
threshold. In order to arrange a smooth transition from
the current to the new framework, MAS plans at least two
years of parallel run with the existing framework. The
calibration of the required capital calculations is expected
to be completed during 2013. The new regulations intend
to target a similar level of capital as Solvency II. At this
stage it will be based on a standard model rather than an
internal model approach. The actual implementation
date is yet to be confirmed.
Singapore
88
Taxation
The profits of an insurer carrying on a business in
Singapore are subject to Singapore income tax under
sections 10(1) and 26 of the Income Tax Act (ITA). While
section 10(1) is the general charging section, section 26
lays out some specific rules to arrive at the taxable
income of a general insurer, a life insurer and a
composite insurer. A general insurer is required to
compute its taxable profits based on its total income,
including premiums, interest and other investment
income. It is allowed adjustments for unexpired risk
reserves and deductions for actual losses, distribution
expenses and allowable management expenses.
Goods and services tax (GST) at the standard rate of 7%
(currently) generally applies to general direct insurance
premiums, except for certain qualifying direct premiums
from international marine and aviation insurance, travel
insurance and export credit insurance which can be zerorated. General reinsurance premiums are exempt from
GST. Similarly, life insurance and reinsurance premiums
are exempt from GST.
There is no stamp duty on insurance premium in
Singapore. There is also no premium tax in Singapore.
The calculation of a life insurer's taxable profits is fund
based, being the aggregate of taxable profits of its Par
Fund, Non-Par Fund, Investment-linked Fund and
Shareholders Fund. The taxable profits of these funds are
determined according to specific and rather complex
rules laid out in section 26 of the ITA. A composite
insurer's taxable income is the sum of the taxable profits
of its general insurance business and life insurance
business. Other than the taxable profits allocated to
policyholders of the par fund which is taxable at 10%,
income of an insurer is normally subject to tax at the
corporate tax rate which is currently 17%. Tax exemption
or lower concessionary tax rates of 10% or 5% are also
available under a range of tax incentive schemes. There
are qualifying criteria and conditions for these tax
incentive schemes. In addition, to enjoy such tax
incentive schemes, an insurer is required to apply to the
MAS to be an approved insurer.
Common tax incentives available to the insurance
industry include the following:
 Offshore insurance business tax scheme – 10%
 Offshore takaful and retakaful business tax
scheme 5%
 Offshore specialised risks tax scheme – 0%
 Marine hull and liability tax scheme – 0%
 Offshore captive business tax scheme – 0%
 Offshore broking tax scheme – 10%
 Financial sector incentive – headquarter services tax
scheme – 10%.
Singapore
89
Products
In the domestic non-life sector, the main products are
motor, personal accident, workers injury compensation,
health and fire. The Offshore Fund is dominated by
marine cargo and hull, although Singapore is developing
as a key regional hub for complex insurance and
reinsurance underwriting. Commercial insurance
products are offered through the companies market and a
growing Lloyd’s platform. Most general insurance is sold
through intermediaries and the main global insurance
and reinsurance brokers are all represented.
The Life market offers regular and single premium
products. Participating (Par) products are the most
popular, followed by Non-Par and Investment linked. Of
the total Single premium sales, a significant amount is
comprised of CPF (Central Provident Fund) sales. The
CPF is a comprehensive savings plan for working
Singaporeans and permanent residents to fund their
retirement, healthcare, and housing needs.
Tied agency is the main distribution channel for life
business in Singapore, with many insurers looking to
enlarge their agency force and/or take steps to boost
agency productivity. Bancassurance is expanding rapidly,
and the ‘Financial Advisor’ channel has gained traction in
recent years.
Many insurers are actively exploring non-agency
channels, including a growing (but still relatively modest)
trend of companies adopting the direct/online channel in
Singapore, primarily for travel, home, personal accident
and motor insurance.
The MAS recently introduced the ‘Financial Advisory
Industry Review’ (FAIR). This is a comprehensive
evaluation of the financial advisory industry with the
Review Panel chaired by the Monetary Authority of
Singapore (MAS). See ‘key issues’ for further
information.
Singapore
90
Drivers
General insurance
Direct Life insurance
Offshore gross premium accounted for 65% of total
general insurance premium in 2011.
Consumer confidence in life insurance solutions has
remained strong, despite the uncertain economic climate.
This has led to 22% growth in new business sales
(weighted basis).
High catastrophic losses incurred resulting from a
number of natural catastrophes in the region and
insured/reinsured in the Singapore Offshore Insurance
Fund (OIF). Events included earthquakes in Japan and
New Zealand, and floods in Australia and Thailand.
The OIF continues to grow as Singapore develops as a key
regional hub for complex insurance and reinsurance
underwriting.
Of 2011 Offshore total gross premium, S$1,632.8m is
from direct business, S$3,700m from reinsurance and
S$1,064m from captives.
The largest sources of reinsurance premium in the OIF
are China (19%), followed by Australia/New Zealand
(18%) and Japan (13%).
Various initiatives have contributed to this growth,
including programmes to boost agent productivity, the
development of bancassurance and other distribution
channels, and launches of new products.
However Financial instability has undermined investment
earning on Investment Linked Products (ILPs).
Of new business sales, single premium increased by 17%
and annual premium by 24%.
Significant impact from new entrants selling ‘high net
worth’ products.
Despite increased gross premium and only marginal rise
in claims incurred, increases in distribution costs and
management expenses caused an overall reduction in
underwriting profit of the domestic Singapore Insurance
Fund (SIF).
There was a return to profitability of motor insurers in
2011. The underwriting profit for that line amounted to
SGD21.2m, and it was the first year since 2005 that motor
insurers have achieved an underwriting profit.
All major classes of business in the SIF achieved growth
in premiums written with health recording the highest
increase in earned premiums at 14%, after seeing no
growth in 2010. Personal accident showed 8% growth,
and motor 4.5%.
Net Incurred Loss Ratio % of the SIF deteriorated slightly
from 55.1% in 2010 to 56.3% in 2011.
Non-Life insurance penetration (% of GDP) in Singapore
has risen over the years (from 2.55% in 2005 to 2.9% in
2011).
Low interest rates and investment returns are impacting
profitability. The focus is on ‘core’ functions like
underwriting and claims.
Singapore
91
In 2000, the MAS introduced a programme to
liberalise the insurance industry. This removed the
closed-door policy on direct insurers, and allowed the
admission of new entrants based on the
following criteria:
 Domestic and international rankings.
 Present and past credit ratings.
 Track record and reputation.
 Commitment to contribute to Singapore’s financial
sector development.
Applicants with a strong record in product innovation
and use of alternative distribution channels, or in
specialist fields, will receive favourable consideration.
There is not any fixed limit on number of new entrants,
but admission will be spaced out to minimize the risk
of unsound, short-term market practices. Foreign
ownership is permitted in the form of wholly owned
subsidiaries or branches. There are no restrictions on
the level of foreign ownership. Foreign insurers and
reinsurers are also allowed to set up representative
offices, though these are not authorised to write
business. There is a requirement for any increase in
shareholdings (local or foreign) in a locally
incorporated insurer to 5% or 20% to be approved by
the MAS. Reinsurance companies and captives have an
open policy on admission.
Along with the liberalization, MAS introduced
measures to raise standards of corporate governance
and market conduct, strengthen protection of
policyholders’ interests by insurers, implement revised
minimum capital requirements and enhance the
efficiency of distribution. The continuation of this can
be seen in the imminent changes to capital
requirements (RBC2) and Financial Advisory Industry
Review (FAIR).
Singapore
92
Key issues
 In 2012, the MAS introduced the ‘Financial Advisory
Industry Review’ (FAIR). This is a comprehensive
evaluation of the financial advisory industry with the
Review Panel chaired by the Monetary Authority of
Singapore (MAS). There are 5 key thrusts of FAIR:
– Raise the competence of financial advisory
representatives
– Raise the quality of financial advisory firms
– Make financial advice a dedicated service
– Lower distribution costs of insurance products
– Promote a culture of fair dealing.
In January 2013, the MAS released the 28
recommendations from the FAIR review panel making
proposals in each he above 5 areas.
 In the light of evolving market practices and global
regulatory developments, MAS is reviewing the riskbased capital framework for insurers in Singapore.
The review (“RBC 2 review”) aims to improve the risk
coverage and risk sensitivity of the current framework
and to specify the MAS’ supervisory intervention
threshold. In order to arrange a smooth transition
from the current to the new framework, MAS plans at
least two years of parallel run with the existing
framework.
In line with international developments MAS is
planning both to increase the scope of the risks to be
included in the TRR calculation and to recalibrate the
required risk charges for existing risks. The overall
impact will not be assessable until the calibrations are
set and based on experience in other jurisdictions the
impact may vary widely between insurers.
The proposal is that TRR will include elements for
credit spread risk, insurance catastrophe risk and
operational risk. The calculation of these risk charges
has still to be set. However since these risks have not
been considered in RBC calculations so far, this will
lead to an increase in the base capital requirement
calculation.
Singapore
 In addition to the review of the current Risk-Based
Capital (“RBC”) regime, in January 2013 MAS has
released a consultation paper that sets out proposed
new ERM requirements to be applied. The objective is
to improve industry standards on ERM practices. This
will enhance an insurer’s understanding of the risks
and its potential impact on business, and focus
management actions on implementing risk
management policies and practices to ensure ongoing
business viability in line with long term business goals
and strategy, and its capital resources.
 There have also been consultation papers released by
the MAS in early 2013 on the following topics:
– Proposed Public Disclosure Requirements for
Insurers – The MAS is proposing to enhance the
public disclosure requirements for insurers to
ensure that they disclose relevant, comprehensive
and adequate information on a timely basis in
order to give members of the public, including
policyholders, a clear view of their business
activities, performance and financial position.
This is expected to enhance market discipline and
understanding of the risks to which an insurer is
exposed and the manner in which those risks are
managed. MAS proposes to apply the disclosure
requirements to all registered insurers, except for
captive insurers and marine mutual insurers.
– Review of Requirements on Investment Activities
of Insurers – All insurers are expected to observe
MAS’ Guidelines on Risk Management and
maintain sound investment practice. Direct life
insurers are subject to additional requirements on
their asset management processes. With the
growth of assets and corresponding increase in the
investment activity of direct general insurers and
reinsurers, MAS proposes to extend the scope of
these additional requirements to include direct
general insurers and reinsurers. The proposals
relating to the governance and risk management
requirements would cover insurers on a solo basis
and insurance groups.
93
Future outlook
General insurance
Direct Life insurance
Non-Life penetration (% of GDP) has risen over the
years (from 2.55% in 2005 to 2.9% in 2011). This is high
for the region, and growth is expected to continue.
Singaporeans continue to see life insurance as a beneficial
channel for organised savings.
Demographics indicate long term growth potential in
health insurance.
Life density rose from about US$1,893 per capita in 2005
to US$3,106 in 2011. Density is expected to increase
further if there is sufficient investor confidence. However,
volatility in global and regional financial markets could
cause density to remain flat.
The development of the domestic non-life segment will
be dependent on consumer confidence and the
continued trend of global companies setting up
operations in Singapore, due to the stable business
environment.
Expected further population growth offers future
opportunities.
Premiums are growing, however only at single figure
rates in the SIF.
Insurers are looking at developing innovative products or
increasing productivity of their distribution channels as a
way to increase premiums and market share.
A strategy for the government is to develop Singapore
as a key regional hub for complex insurance and
reinsurance underwriting.
There is still huge scope for expansion of the offshore
insurance business.
The growth of the economies in South East Asia bodes
well for growth prospects of Singapore as a regional
insurance hub.
Singapore
94
Singapore is a leading insurance centre in the Asia Pacific region, with 161 registered insurers and reinsurers.
Non-life insurance in Singapore is made up of a mature domestic segment and a rapidly developing offshore segment.
The offshore segment benefits significantly from the overall economic growth of South East Asia. Singapore is also a
regional centre for reinsurance, with global reinsurers already making up a large proportion of the offshore non-life
business written.
Singapore has a mature domestic life insurance segment. Life insurance premiums continue to grow strongly as a
result of high income levels and high savings rates. There is also a growing ‘high net worth’ market that writes both
domestic and offshore business.
General insurance
Life insurance
There are 46 active direct general insurers in Singapore.
There are 16 active direct life insurers in Singapore.
Foreign insurers have a stronger presence in the non-life
segment than the life segment.
Prudential, AIA and the local life companies (one of
which is a subsidiary of a very large local bank) are
dominant within their segment, and some foreign
companies have found it difficult to achieve a significant
market share.
The SIF is considered over serviced with a market of just
over 4.2 million people. However, a large amount of
general insurance premium comes from the offshore
business due to Singapore’s role as a major regional
insurance centre and an important shipping hub.
Key players
Singapore
95
Contacts
PwC in the market
Roy Clark
Ang Sock Sun
Partner
Insurance Leader
Partner
Assurance
+65 6236 7368
roy.j.clark@sg.pwc.com
+65 6236 3638
sock.sun.ang@sg.pwc.com
Kwok Wui San
Woo Shea Leen
Partner
Regulatory Advisory Services
Partner
Assurance/Market Entry
+65 6236 3087
wui.san.kwok@sg.pwc.com
+65 6236 3908
shea.leen.woo@sg.pwc.com
Alywin Teh
Yip Yoke Har
Partner
Business Consulting
Partner
Tax
+65 6236 7268
alywin.teh@sg.pwc.com
+65 6236 3938
yoke.har.yip@sg.pwc.com
Siang Thnia Lim
Stuart Last
Director
Actuarial
Associate Director
Transactions
+65 6236 4068
siang.thnia.lim@sg.pwc.com
+65 6236 7280
stuart.d.last@sg.pwc.com
Singapore
96
97
The Taiwan insurance industry’s main business is
divided into the life and general insurance sectors.
Reinsurance companies and insurance agents and
brokers are peripheral businesses that have developed
out of support for the main insurance industry. The
insurance companies who pursue to be engaged and
registered in the insurance business shall get
permission from the competent authority, the
Insurance Bureau. The Insurance Bureau, which
belongs to the Financial Supervisory Commission
(FSC), oversees that the two sectors act in accordance
with the Insurance Act and is responsible for
maintaining financial stability, ensuring continuing as
going concern, and protecting rights of the insured. One
precautionary measure in place is a minimal RBC ratio,
and if a company’s ratio was to fall below 200%,
governing authority will enforce actions deemed
necessary to bring it back to optimal condition (such as
capital injection, ownership transfer, etc.).
The Taiwan Insurance Guaranty Fund (TIGF) is a
separate stabilization fund sponsored by both life and
general insurance companies, with the aim being to
safeguard interests of insured parties and maintain
financial stability. Life insurance firms usually pay a
membership fee equivalent to 0.2% of gross premium
income while general insurance firms pay a fee
equivalent to 0.1% of total premium revenue; however
the fee is adjusted accordingly taking into consideration
the condition of the economy, the state of development of
the financial industry, and the ability of insurance firms
to pay. TIGF may provide loans to firms experiencing
financial distress and works in conjunction with the FSC,
which is the governing authority of TIGF. When the
amount of funds accumulated in a stabilization fund is
insufficient to safeguard the interests of insured parties
and there is a likelihood of serious threat to financial
stability, the fund may seek permission to borrow funds
from financial institutions.
Consumer protection and market integrity are upheld
through the Life Insurance Association and the Non-Life
Insurance Association. Both associations are not
government-affiliated, rather self-governing
organizations composed of members from the industry.
Taiwan
98
and taxation
Financial reporting requirements
Companies prepare their financial report in line the Taiwan Generally Accepted Accounting Principles (GAAP) and
Commercial Accountings Act and Rules for the Preparation of Financial Reports by Insurance Institutions.
In 2011, Taiwan adopted the Statement of Financial Accounting Standards NO.40 which mirrors International
Financial Reporting Standards (IFRS) 4 (phase 1). In 2013, insurance companies will apply IFRS and commence
Republic of China GAAP in parallel. TIFRS is implemented based on IFRS standards translated and announced by the
Financial Supervisory Commission (FSC). However, IFRS4 phase 2 implementation schedules have yet to be finalized.
Insurance companies must present annual and interim financial statements and risk-based capital (RBC) reports.
Taxation
In accordance with regulations set forth by the National Taxation Bureau, insurance companies, for both life and
general, assume a corporate tax rate of 17% under regular income tax regime. An additional 10% undistributed
retained earning tax is levied on any retained earnings not distributed (not applicable to branch). Such tax paid by
enterprise is available as an imputation tax credit to resident enterprise or individual shareholders against their
income tax liabilities. It is also available as a tax offset to foreign shareholders who are taxed on dividends received
subject to certain tax limit.
In addition to above regular income tax regime, the Income Basic Tax, also known as the alternative minimum tax
(“AMT”), at the current rate of 10% but will increase to 12% in 2013. The AMT payable is calculated as follows:
Income Basic Tax=[(taxable income + certain exempt income)-TWD 2,000,000]*Applicable tax rate
AMT Income Tax
Exempt income includes trading of securities and futures, etc. Where the regular income tax payable is greater than or
equal to the income basic tax calculated, the regular income tax payable shall be paid. If the income basic tax is greater
than the regular income tax payable, income basic tax shall be paid.
Financial institutions engaged in insurance are regarded as non-VAT entity (also known as gross business receipt tax
entity “GBRT entity”). For GBRT entities, 2% GBRT applies to insurance premiums, and 1% GBRT applies to
reinsurance premiums, which are non-creditable nor refundable.
Taiwan
99
Products
Life insurance products offers life, accidental, health,
annuity, and investment-linked insurance, of which the
latter two are only offered to individuals and the first
three, are offered to both individuals and groups. The
main channels of distribution in this sector are agents
and brokers, bancassurance, and the company’s own
sales force. Bancassurance is especially advantageous for
the big players, as most are owned by financial holding
companies, and can easily partner up with banks owned
by the same financial holding company. Yet the
importance of the company’s own sales force cannot be
overlooked, as it still accounts for a large proportion of
gross premium revenue. From 2010-2012, life insurance
companies’ own sales force made 32%, 41%, and 39% of
gross premium revenue while bancassurance made 65%,
55%, and 57% of gross premium revenue.
General insurance premiums mainly stem from sales of
automobile, fire, and accidental insurance products, with
the remaining distributed among marine, aircraft,
contractor, credit and guarantee, and liability insurance.
Due to the nature of the products, less prevalent standing
in the industry compared to life insurance, and the
smaller-scale sales force, general insurance firms are
relatively keener upon finding alternatives to the
traditional sales channels. In addition to alliances with
automobile dealers, general insurance firms have
gradually begun to explore internet, mobile, and
television channels of distribution.
As life and general insurance premiums plateau, both
sectors have reached the maturity stage of the product
life cycle. The life and general insurance sectors have
high penetration rates of 13.9% (2011) and 3.1% (2011)
respectively (a combined 17% for 2011), ranking number
one worldwide; saturation levels for life and general
insurance sectors are USD$2,757 (2011) and
USD$614(2011) per capita (a combined USD$3,371 for
2011), ranking number seventeen worldwide.
Taiwan
100
Drivers
Life insurance
General insurance
Life insurance market in Taiwan faced challenges
associated with slowing economic conditions and
volatility in investment markets for 2011. However,
there appeared to be a rebound trend in 2012 that
turned the loss in 2011 to a profit. Additionally, the
revisions of the Insurance Act in 2012 allowed
increasing the overseas portion of the investment
portfolio, raising foreign investment profit.
As Taiwan faced relatively fewer catastrophes in 2011
compared with others in the region, the local general
insurance sector encountered fewer catastrophe claims,
which helped with averting a decline in the sector’s profits.
In 2011, the average retention ratio of general insurance
market is 64% while net claim ratio is 55% and net expense
ratio is 39%; net combined ratio is 94%.However, the
sector’s vulnerability to catastrophes stresses the sector’s
need to employ sound capital buffers and enterprise risk
management.
Both the implementation of a new life table in July
2012 and a lowered assumed interested rate on
insurer’s required reserves is anticipated to raise costs,
which would consequently result in higher premiums.
Under this expectation, the sales of traditional life,
accidental, and health insurance policies have grown.
Taiwan’s slow but sure economic growth in 2012 assisted
with premium growth. To maintain a steady growth in
future fiscal years, an improvement in pricing discipline is
inevitable. Since the liberalization of non-life insurance
premium in 2009, the sector has undergone fierce pricing
competition, hurting the sector’s underwriting results.
However it is believed insurers will begin to selectively reprice products with higher loss experience over the next few
quarters.
Life insurance
General insurance
The FSC is open to new licence applications, but given
current market conditions, the FSC exercises careful
scrutiny in the approval process. Due to the number of
small and mid-sized companies, it is more encouraged to
enter the life insurance sector by means of consolidation
or acquisition. Given the majority of dominant
incumbents are backed by financial holding resources and
brand-name, it will be a difficult feat for new entrants to
gain sizeable market share in a saturated market.
The FSC is open to new licence application, but given
Taiwan’s small general insurance market and high level of
competition, intent to enter is low. Additionally, the
shrinking margin resulting from liberalization of non-life
insurance premium and long-time standing of
incumbents discourages new firms in entering the mature
market.
Taiwan
101
Key issues
Life insurance
General insurance
One of the most critical problems the sector faces is
duration mismatch. This mismatch results from the
absence of long-term investment instruments in Taiwan,
creating an imbalance where long-term liabilities’
proportion in total liabilities is perpetually higher than
long-term assets’ ratio in total assets. When market prices
undergo larger oscillation, there is a higher risk of loss.
Also, owing to the global economic trend of falling
interest rates, the actuarial assumption interest rate of
legacy insurance policies are almost always higher than
the current rates of investment, leading to a negative
interest rate spread.
As the general insurance sector explores new sales
channels, the FSC will need to establish regulations and
means of monitoring that protect the rights of the insured
parties.
The Taiwanese general insurance sector has reached a
saturated state, with few firms entering or leaving. It is
important governing authorities find a way to maintain
this balance. Regarding the price war issues, a pricing
discipline will have to be designed to ensure the stable
condition continues on.
The combination of a monumental decline in return on
investment resulting from the worldwide financial crisis
in 2008 and operating losses led to an overall decrease in
RBC ratio. As of June 2012, six companies still fall short
of the 200% RBC ratio, necessitating an increase of
capital to meet required RBC level.
In addition to low rates of return in the Taiwanese
economy, implementation of IFRS4 abroad is another
factor in the exiting of foreign firms. As IFRS4 increases
reserve requirements, many foreign companies are
withdrawing capital from peripheral markets and
focusing on main businesses in the States or Europe.
Future outlook
 Growth in the local market is limited given the already saturated Taiwanese market.
 Since Taiwan is located advantageously beside China and familiar with Chinese culture, both sectors are looking to
expand into the Chinese market with better terms of business. As of last count, six Taiwanese life insurance
companies (branch offices, joint subsidiaries, and equity participation) and ten Taiwanese general insurance
companies (majority only being granted permission for branch offices) have extended their reach into the Chinese
market.
 In the face of economic uncertainty, oscillating government policies, aging population, and gradual increase of
catastrophes, it is expected both sectors will come up with new products to match the needs of customers.
 Unsurety regarding whether Taiwan’s national health insurance and labour insurance will cease to exist may
prompt an increase in purchase of health, life, and investment-linked insurance.
 If the rate of return in Taiwan continually remains significantly low with no signs of improvement, the government
could consider loosening the cap for foreign investments.
Taiwan
102
Life Insurance
General Insurance
The life insurance industry is considered to have a higher
level of concentration. 70% of market share in terms of
gross premium are dominated in the top five players.
Apart from Nanshan, the big-name firms in the industry
all belong to local financial holding companies.
The general insurance industry maintains a higher level of
concentration. When the third stage in liberalization of
non-life insurance premium took place in 2009,
premiums (with the exception of compulsory auto
insurance, home fire insurance) were no longer regulated
but instead set by a combination of market mechanism
and companies themselves. Big companies, with their
concentrated resources, could afford to start a price war,
which consequently shrank profit margin.
As several foreign insurance firms exit the Taiwanese
market, smaller companies fight for redistribution of
market share and resources, creating a competitive
environment.
Key players
Taiwan
103
Contacts
PwC in the market
Lily Wong
Richard Watanabe
Advisory
Tax
+886 2 2729 6703
lily.wong@tw.pwc.com
+886 2 2729 6704
richard.watanabe@tw.pwc.com
Maria Chen
Assurance
+886 2 2729 5204
maria.chen@tw.pwc.com
Taiwan
104
105
The insurance industry in Thailand is divided into 2
categories for regulatory purposes; life and general
insurance. To write insurance business in Thailand,
general insurance companies must be registered under
Non-life Insurance Act B.E. 2535 (Amended B.E. 2551),
while life insurance companies must be registered under
Life Insurance Act No.2 B.E. 2535 (Amended B.E. 2551).
Under both Acts, insurance companies must be
incorporated as public companies under the Public
Company Act which must be at least 51% Thai owned.
The Office of Insurance Commission (OIC) is the
organisation which regulates and supervises the
operation of all insurance companies, agents and brokers
to achieve business stability, conformity to law and
regulation and efficiently raise and incentives savings.
The OIC also promotes and develops insurance business
to benefit national economical growth and social
development, including economic competitiveness
considerations and readiness for the opening of free
trade, particularly in the context of ASEAN
developments.
A key activity of the OIC is to regulate capital
requirements to ensure companies can absorb significant
unforeseen losses under the risk-based capital regime,
which came into effect in 2011.
Thailand
106
and taxation
Financial reporting
requirements
Financial statements for insurers are prepared under
Thai GAAP. Most of these standards have recently been
revised to align with the current IFRS. At present,
insurers in Thailand have not applied IFRS 4 Insurance
Contracts. IFRS 4 phase I will be effective from 2016.
This phase will require disclosure to help users
understand the amounts in the insurer’s financial
statements that arise from insurance contracts and the
nature and extent of risks arising from insurance
contracts.
Capital regime and
requirements
OIC requires insurers to maintain a level of capital based
on insurance risk, market risk, credit risk and
concentration risk to ensure that companies can absorb
significant unforeseen losses in the future. Between 1
September 2011 and 31 December 2012, the OIC required
insurers to maintain a minimum 125% Solvency
requirement. From 1 January 2013 onwards the
minimum Solvency requirement is 140%.
At present, OIC is incorporating operational risk into
Thai Risk Based Capital (RBC) regulation, which is
expected to be reformed in the next 18 months. The new
regime is likely to result in higher capital requirements
than the current regime, where capital requirements are
low compared to Solvency 2 standards. This is
particularly the case for general insurance, where the
impact of the 2011 floods suggests the current calibration
is too low. The new regime is also likely to be more
complete, incorporating operational, group and liquidity
risk, and somewhat more technically sophisticated. The
reform of the RBC regime may also be associated with a
more open investment and product regulatory regime.
Taxation
Thailand insurance companies are assessed for taxation
under Section 65 of The Revenue Code. Tax is payable on
the profits of a general or life insurer at the corporate tax
rate of 30%. According to Royal Decree 530, there is a
temporary tax rate cut for companies and juristic
partnerships for 3 account periods. The tax rate is
reduced to 23% for one accounting period commencing
on or after 1 January 2012, and 20% for two accounting
periods commencing on or after 1 January 2013.
In determining taxable income, the Revenue Code allows
life insurance companies to deduct the policy reserve as
tax deductible expense but not exceeding 65% of the net
written premium. Non-life insurance companies are
allowed to deduct the unearned premium reserves as tax
deductible expense but not more than 40% of the net
written premium. The industry is lobbying for a change
in the taxation regime to be based on market value
reporting.
Additionally, life insurance companies are required to
register as a specific business tax operator and are subject
to a specific business tax rate of 2.75% (including
municipal tax) on gross receipts of interest, fees and
service charges. General insurance companies are subject
to value added tax (VAT). The current VAT rate
(including municipal tax) is 7% which is a reduced rate
for a temporary period under a Royal Decree until 30
September 2014. The VAT rate is currently expected to
revert to 10% on 1 October 2014.
Thailand
107
Products
General insurance in Thailand offers many type of
products with full of coverage risks. The most popular
products are automobile insurance, household insurance
and fire insurance. These products and services are
distributed through brokers, agent, telemarketing,
bancassurance and direct mail channels.
Life insurance products are dominated by whole of life
and endowment products. Guarantee levels are high
although reducing. Mortgage term products are growing
in line with the expanding mortgage market. In recent
years, unit linked and annuity products have been
launched, although volumes remain low. The regulatory
product approval and pricing regime is perceived to act
as an impediment to product innovation, with a
restrictive tariff pricing regime and an unclear and
lengthy product approval process.
Life insurance products are mostly distributed by tied
agents and bancassurance, with telemarketing and
broker significant channels for some products.
Bancassurance sales have increased in recent years. The
proportion of new business sales through agency has
fallen from 44% in 2009 to 39% in 2012 while sales
through banks have grown from 49% of the market in
2009 to 54% in 2012.
Thailand
108
Drivers
General Insurance
Life Insurance
The 2011 floods continue to have a significant impact,
driving up prices and reducing capacity and price
competition. The floods are still impacting the financial
performance of general insurance companies, with large
claims and reinsurance settlements still outstanding.
Current returns on life products are attractive relative to
short term bank products, driving up demand. The
industry also benefits from taxation incentives. There is a
possibility that these tax incentives may be reformed in
future, which could lessen the competitive advantage of
life companies.
The growth rate of general insurance is higher than life
insurance for the first time in this decade because of the
first car policy introduced in 2012. Under this policy, the
first car owner receives an excise tax refund, which at
most, 100,000 baht.
Bancassurance in particular continues to grow at a faster
rate than agency.
General insurers have developed new products which
cover natural disasters. This is partially a response to
greater demand post-flood.
 In theory, OIC is open to new license applications however
in practice there have been no new licenses issued in many
years. OIC requires every new license application to include
a three year business plan.
 The OIC has required insurance business to change from a
limited company to a public company structure within 5
February 2013. Public companies are limited to foreign
ownership of 49%.
 With the limited level of concentration in the non-life
market there is a low level of existing brand dominance for
new entrants to compete with.
 In the life segment, the high level of industry concentration
creates economies of scale, which form an effective barrier to
entry, particularly within agency business.
 In bancassurance, there are a limited number of significant
banks with which to form partnerships, and deals are
becoming increasingly expensive.
 Numerous smaller life companies are expanding in niche
product areas, such as annuities, or niche distribution such
as direct marketing.
Thailand
109
Key issues
 Increased capital requirement: The increase in the
required capital adequacy ratio from 125% to 140%
may impact most heavily on some of the small to
medium sized insurer who are already facing
significant exposures arising out of the severe
floods of 2011
 Liberalisation of insurance sector: current pricing is
heavily tariff based, controlled by the OIC for both
life and non-life business, but this is likely to be
relaxed ahead of the implementation of the Asean
Framework Agreement on Services in 2015
 Potential for consolidation: The OIC has openly
expressed a desire to see consolidation in the nonlife insurance segment. As at January 2013 there
were 65 non-life insurance companies is Thailand
 Changes in distribution: Agency remains the
leading distribution channel for life insurance but
bancassurance has grown rapidly in recent years,
and could well become the leading channel in the
future. For the non-life segment, brokers are still
the primary distribution channel, however new
channels are emerging including via retail networks
such as Tesco Lotus
 Low product penetration: Thailand’s insurance
penetration and density remains low compared to
global and regional averages. Marketing, product
development and research are the key challenges.
Future outlook
General insurance
Life insurance
The number of general insurance companies is expected
to decline due to regulatory development and the current
lack of industry concentration.
The life industry is expected to continue grow strongly
supported by economic growth and social
development..In the medium term, a key risk is
discontinuation of the favourable personal taxation
regime.
In particular this is an expectation of a significant
increase in minimum capital requirement under the
coming reform to the RBC regime driving M&A. Many
companies continue to deal with the consequence of the
flood which will further drive industry consolidation
The support from the government to develop Micro
insurance is expected to lead to significant growth in this
area in the future.
More generally, strong economic growth in combination
with low levels of penetration will support significant
future growth in general insurance.
Products are currently dominated by savings with high
levels of guarantees. We expect the industry to attempt to
lower product guarantees and shift investment risk
policyholders. But this depends to a extent on reform of
the regulatory product regime.
We see most room for growth in products aimed at the
growing 50+ population.
Bancassurance will continue to grow most strongly in the
short term. In the longer term, regulator reform of
distribution is a key risk to major companies’ business
models, both in agency and bancassurance.
Thailand
110
General insurance
Life insurance
The general insurance industry is characterized by
moderate concentration within the major players in
Thailand. The top five companies are currently locally
owned.
The life insurance industry has a high level of
concentration with top five players accounting for over
70% of the market.
There are 65 general insurers in Thailand. At present,
there is strong competition in selling flexible and cheap
products which cover full coverage of risk. However the
impact of the floods has been to moderate price
competition.
Genuine price competition is restricted through the
dominance of tied agents and exclusive bank distribution
– customers do not have multi-provider product choice
from distributors. Products, particularly savings products,
are characterized by minor variations in design and
benefit structures which can make product value
comparisons difficult.
There is generally a lack of transparency around some
product features, for example the bases for expected
returns or the bonus setting mechanisms on participating
business, and agency remuneration, which reduces the
efficiency of the market.
Key players
Thailand
111
Contacts
PwC in the market
Anothai Leekitwattana
Insurance Leader
+662 344 1100
Anothai Leekitwattana@th.pwc.com
Prapasiri Kositthanakorn
+662 344 1228
Prapasiri.kositthanakorn@th.pwc.com
Gary Murphy
Charles Ostick
+662 344 1137
+663 344 1167
Gary Murphy@th.pwc.com
Charles Ostick@th.pwc.com
Phuwin Norchoovech
Tom Ashton
+662 344 1441
+662 344 1472
Phuwin Norchoovech@th.pwc.com
Tom Ashton@th.pwc.com
Thailand
112
113
and taxation
Financial reporting
requirements
Capital regime and
requirements
Accounting and financial reporting including technical
provisions for insurance activities is mainly rule based,
regulated by the Ministry of Finance. In general, the
accounting and financial reporting is in compliance with
Vietnamese Accounting Standards, the Vietnamese
Accounting System and regulations applicable to
insurance companies operating in Vietnam.
For insurance companies, legal capital is set by the
Ministry of Finance as a minimum level for establishing
and running insurance business. Minimum legal capital
for non life insurance companies and life insurance
companies are VND300 billion and VND600 billion,
respectively. Apart from the legal capital requirements,
insurance companies are also subject to certain other
requirements such as capital adequacy and
solvency ratio.
Financial statements are statutorily required to be
audited by independent auditing firms. Apart from the
statutory audit on the financial statements, the
following, where applicable, are also required to be
certified by independent audit firms for foreign
insurance companies, reinsurance companies, branches
and insurance brokerage companies:
 Activities of receiving and assignment of reinsurance
 Technical provision setting
 Solvency ratio
 Commissions, revenues, expenses, profits and profit
distribution
 Investments from the owner’s equity, investments
from the provisions
 Fixed assets and depreciation
 Receivables, liabilities payable, owner’s equity
 Fund splitting and surplus of contract owner funds for
life insurance enterprises.
Insurance enterprises and foreign branches are required
to prepare and submit financial statements to the
Ministry of Finance on a quarterly and annual basis.
Insurance enterprises and foreign branches also prepare
and submit to the Ministry of Finance statistical reports
and operational reports on a monthly, quarterly and
yearly basis.
Taxation
Vietnam only has national taxes (ie there are no local or
municipal taxes), nor are there specific insurance
business related taxes. The following major taxes must be
considered:
 Corporate income tax (CIT): enterprises established in
Vietnam are currently subject to 25% CIT (there is a
proposal to reduce the standard rate to 23% from
2014). There are no specific tax incentives for
insurance companies. In addition to the general CIT
rules, insurance companies are subject to insurance
specific regulations which may limit the deductibility
of certain expenses. Tax losses can be carried forward
to offset taxable profit of subsequent years for a
maximum period of 5 years.
 Value added tax (VAT): certain insurance, including
inter alia life insurance, health insurance, human
accident insurance, is VAT exempt. For VAT exempt
services, no input VAT can be claimed. Insurance,
which is not included in the list of VAT exempt
insurance, is subject to 10% VAT. In such case, input
VAT can be credited against output VAT.
Vietnam
114
Products
The Vietnamese general insurance sector offers various
risk products to individuals and businesses. The main
lines of insurance (and % of 2012 premiums) that are
driving the sector are: Motor (28%), Personal Accident &
Health (18%), CAR & EAR (builders’ risk) (13%), Hull
and P&I (8%) and Cargo (8%). General insurance lines
have been growing rapidly in recent years with a 21% and
10% annual increase in premiums in 2011 and 2012,
respectively.
The Vietnamese life insurance sector provides a wide
range of life products. However, the main contribution to
the sector only comes from two products: Endowment
(67%) and Investment Insurance (24%). The remaining
products are still very limited in the market such as
Riders (6.2%), Term Life (1.8%), Whole Life (0.9%) and
especially Annuities which only accounts 0.3% of the
sector.
Group policies are very limited in the Vietnamese market
with 99% of life insurance contributions coming from
individual policies. Various life companies are now
developing new products for the Vietnamese market.
The insurance sector is regulated by the Insurance
Supervisory Division of the Ministry of Finance. The
Insurance Law, circulars and other regulations set out the
rules which insurance companies are required to comply
with. This covers solvency, selling, products and many
other aspects of insurance business.
New products need to be approved by the Ministry of
Finance and the reserving methodologies must also be
approved by the Ministry. Investment opportunities are
restricted both by regulatory and commercial
considerations.
In Vietnam, the main distribution channel for insurance
activities is agencies. The insurance is normally
distributed via small independent agencies. The current
significant growth in agency networks in Vietnam should
support the large forecast increases in overall premiums.
Other channels such as brokers, co-insurers, reinsurance
companies, direct clients are still not typical in Vietnam.
Distribution channels through bancassurance and
internet sale have been set up in Vietnam. However, the
Vietnam market has shown that the development of
bancassurance is still slow due to limit of commission for
banks which may not be as competitive as commissions
for brokers. Internet sales are slow as Vietnamese
continue to prefer cash settlement for transactions.
Settlements through online banking have been just
developed in Vietnam recently.
Vietnam
115
Drivers
Historical growth in premiums has been strong at
approximately CAGR 25% for GI and 15% for LI
between 2006 and 2012. This growth has been driven
by:
 One of the fastest growing economies in Asia in
recent years (GDP CAGR c.7% between 2000 and
2012)
 A growing and increasingly wealthy local population
 The proportion of middle and high income people,
with disposal income to spend on insurance products,
has increased significantly from 47% in 2008 to 64%
in 2010 in major cities
 Rapid urbanisation with better access to insurance
products in urban areas
 Historical population growth of around 1% p.a.
Vietnam
Potential barriers
to entry
 There are restrictions on foreign ownership when
buying into a local insurance company with a
maximum ownership cap of 49%. However, we have
seen evidence of foreign insurers increasing their
ownership over 49% after their initial investment but
this is subject to Ministry of Finance/Government
approval.
 Application for an insurance licence as a wholly
owned foreign insurer is a complex and very long
process.
 Generally poor levels of financial data and weak back
office systems make due diligence challenging.
 Frequent changes in regulations and their
interpretation.
116
Key issues
Future outlook
 The use of life insurance savings policies is being
somewhat constrained by the high inflationary
environment in Vietnam where only approximately
5% of the population has life cover. However, the
monetary policies implemented by the State Bank of
Vietnam in the past two years have helped to reduce
inflation from a high of 19% in 2011 to around 8% in
2012.
 The potential for growth remains positive due to
market demographics and overall economic growth.
Both the General and Life insurance segments are
growing at double-digit rates and total market
premiums are forecast to increase by CAGR c.19% for
general insurance and c.11% for life insurance up
to 2017.
 Vietnamese have historically favoured investment in
gold over life insurance savings policies.
 There are a large number of small GI insurers in
Vietnam with 24 of the total 29 representing just 28%
market share by premium. The majority of these small
operators are local and lack access to new capital
needed for growth.
 Commercial lines (which represent a significant
proportion of general insurance in Vietnam) are
starting to be constrained by a slowdown in industrial
production and manufacturing activity following a
slowdown in the wider economy in 2012 after the
introduction of monetary policies by the State Bank of
Vietnam in 2011.
 The growing and increasingly wealthy local
population makes the market attractive and low
penetration rates indicate scope for future
sustained growth.
 Local companies without a foreign strategic investor
are likely to be open to talks on selling a minority
stake provided this comes with a certain degree of
technical support and expertise post acquisition.
 Some local non-life insurers may expand into the life
sector if they have sufficient technical and
capital support.
 A number of GI companies listed on Vietnam’s two
stock exchanges during 2011.
 The slowdown in the Vietnamese economy during
2012 has raised concerns over the sustainability of
previously high investment income due to falling
interest rates (although still high in a global context at
around 12%).
 Underdeveloped and often volatile capital and bond
markets in Vietnam can make it difficult to plan
investment strategies, estimate future investment
income levels and assess investment asset valuations
(impacting capital adequacy and solvency ratios).
 Vietnam suffers from a lack of insurance technical
expertise including qualified actuaries.
 Local firms are increasing looking for strategic
investors to improve know-how and technology.
Notable M&A activity during 2012 included Insurance
Australia Group’s acquisition of 30% of the equity of
AAA Assurance in April 2012 and HDI Gerling (a
subsidy of the German Talanx Group) increasing its
investment in PetroVietnam Insurance from 25% to
32% in July 2012.
Vietnam
117
 Vietnam has a small and under-developed insurance
market but has been growing extremely rapidly. The
overall insurance market in Vietnam earned VND 41.1
trillion (US$ 2.0 billion) premiums in 2012, an
increase of 12% against 2011
 Although insurance penetration (total
premiums/GDP) is currently low at around 1.4%
(0.6% for LI and 0.8% for GI), total market premiums
are forecast to grow by CAGR c.19% for general
insurance and c.11% for life insurance up to 2017
 The market is dominated by a small number of large
players in both the life sector (Prudential and Bao Viet
Life) and non-life sector (Bao Viet and Petro Vietnam
insurance)
 The general insurance sector is less influenced by
foreign players with the top 5 all being local
companies and representing a combined c.72%
market share (by premiums). The sector is fairly
fragmented with 24 of the total 29 operators making
up the remaining c.28% of the market
 Although new foreign insurers continue to enter the
Vietnamese non-life insurance market, it continues to
be dominated by Bao Viet and PetroVietnam
Insurance. These two insurers represented a
combined 45% of the total market premiums of VND
22.8 trillion in 2012
 Total non-life insurance premiums increased 10% in
2012 (down from 21% in 2011)
 There are currently 29 General, 11 Life and 2
Reinsurance companies along with 12 brokers
operating in the Vietnamese market
 The life insurance market is even more concentrated
that the non-life market with the Prudential and Bao
Viet Life representing 64% of total premiums in 2012
•
 Total life insurance market premiums were VND 18.4
trillion in 2012, an increase of 15% from 2011.
The life market is relatively concentrated with 12
players in the market and Prudential, Bao Viet and
Manulife dominating the sector and holding a
combined c.80% market share (by premiums).
Key players
Vietnam
118
Contacts
PwC in the market
Ian Lydall
Ed Johns
Partner – Chairman of PwC
Vietnam and Industry Leader for
the Financial Services sector
Associate Director – PwC Vietnam
Advisory
+84 8 230 796
edward.johns@vn.pwc.com
+84 8 230 796
ian.lydall@vn.pwc.com
Dinh Thi Quynh Van
Partner – PwC Vietnam General
Director and Tax and Legal Services
leader
+84 4 3946 2231
dinh.quynh.van@vn.pwc.com
Vietnam
119
www.pwc.com.au
© 2013 PricewaterhouseCoopers. All rights reserved.
PwC refers to the Australia member firm, and may sometimes refer to the PwC network. Each member firm is
a separate legal entity. Please see www.pwc.com/structure for further details.
This publication is designed to provide an overview of developments the accounting, tax and regulatory
environment relating to insurance in Australia. Information contained in this booklet is based on the law and
Government announcements as at 30 May 2013. This content is for general information purposes only, and
should not be used as a substitute for consultation with professional advisors.
Liability limited by a scheme approved under Professional Standards Legislation.
PwC Australia helps organisations and individuals create the value they’re looking for. We’re a member of
the PwC network of firms in 158 countries with close to 169,000 people. We’re committed to delivering
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Insurance facts and figures - PricewaterhouseCoopers China

Transcription

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