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Report on

Public Issues by General


Insurance Companies

SEBI Committee on Disclosures and


Accounting Standards (SCODA)

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Table of contents
Section No. Section Page
No.

1 Background 3

2 Recommendations of Sub-group 3

3 Other Recommendations of Sub-group 8

List of Annexure
Annexure No. Details of Annexure Page
No.

Annexure I Industry Specific Risk Factors for Insurance Sector 9

Annexure II Overview of Insurance Industry 19

Annexure III Comparison Table on Disclosures Made in Offer 21


Documents of General Insurance Companies in Other
Jurisdictions

Annexure IV Glossary of Terms Used in General Insurance 30

Annexure IV Format for Report on Investor Grievance 36

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Public Issues by General Insurance Companies

1. Background:
The report of the sub-group on “Public Issues by Insurance Companies”
submitted to SCODA was discussed in the meeting of SCODA held on March
15, 2010. Following were the members of the Sub-group:-
a) Dr. Subramanian, Head-IBD, Enam Securities Ltd.
b) Ms. Dipti Neelakantan, MD & Group COO, JM Financial Consultants
c) Shri Prithvi Haldea, CMD, Prime Database
d) Shri R K Sharma, Deputy Director, IRDA
e) Shri Shravan Jalan, Director, Ernst & Young
f) Shri Sunil Kadam, General Manager, SEBI

SCODA has accepted the recommendations of the sub-group for life insurance
companies however, the sub-group was advised to identify additional disclosure
requirement for General Insurance Companies. The report of the sub-group
with the suggestions given by SCODA was placed before the SEBI Board in its
meeting held on October 25, 2010 and the same was approved. Copy of the
report approved by the SEBI Board is enclosed as Annexure I.

The recommendation of the sub-group on the additional disclosure of General


Insurance Companies was placed before the SCODA in its meeting held on
January 20, 2012.

The recommendation of the sub-group was accepted by the SCODA with the
following changes:-
a. A separate disclosure for re-insurance risk should also be incorporated in
the report

b. Instead of specifying the additional disclosure applicable to the general


insurance companies, the sub-group may submit its supplementary report
giving the all the disclosures requirement for the general insurance
companies.

2. Recommendations of Sub-group
2.1. Disclosures by General Insurance Companies:
2.1.1. Industry- specific Risk Factors for Insurance Companies:
The insurance industry is different from other industries and has risks
which are unique to it. In order to get an understanding of risks specific to
the insurance industry, offer documents of certain insurance companies
which came out with issue of capital in other jurisdictions were studied.
Based on the risk factors disclosed in such offer documents, following are
the minimum broad industry specific risk areas that needs to be disclosed:

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i. Claims arising out of catastrophic losses (natural and man-made),
which could materially and adversely impact the profitability or cash
flow of the insurance companies.

ii. Differences in future actual claims resulting from the assumptions


used in pricing and establishing reserves for insurance and annuity
products which may materially affect earnings.

iii. Risk with reference to concentration by region/type of policies of the


insurance company.

iv. The assumptions based on which the Economic Capital is calculated


and disclosed may vary significantly from time to time / among
industry players.

v. Inability to attract and retain productive agents in a growing


competitive business environment.

vi. Inability to obtain reinsurance on a timely basis or at all, which results


in bearing increased risks or reduce the level of our underwriting
commitments.

vii. Default by one or more of our reinsurers which could materially affect
the financial condition and results of operations.

viii. Regulatory restrictions on investments by insurance companies

ix. Exposure to recovery related risks including for foreclosure of the


mortgages

x. Risk of regulated tariff

xi. Increase in the claim liability of motor third party due to the judgments
of courts

xii. Inability to accurately predict benefits, claims and other costs or to


manage such costs through loss limitation methods, which could
have a material adverse effect on the operations and financial
condition
The sub-group recommends that the aforementioned list may act as
guidance for companies while disclosing the risk factors in the offer
documents. The sub-group also compiled detailed risk factors for
insurance companies which are placed at Annexure I.
The sub-group recommends that:

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a. The detailed risk factors as identified by sub-group may be placed
on the website of IRDA which may act as guidance to insurance
companies coming out with IPO.
b. SEBI may prescribe the disclosure of aforementioned list of risk
factors in the offer documents of insurance companies through
circular or standard observations.
2.1.2. Disclosure on Overview of the Insurance Industry:
The SEBI (ICDR) Regulation does not prescribe the format or the contents
of industry overview which need to be disclosed in the offer documents for
any industry. However, considering the fact that no insurance company in
India has come out with an issue so far, it is felt necessary that the
investors get a broad overview of the insurance industry. In view of this,
broad parameters under which the disclosure on insurance industry
overview may be made have been listed and placed in Annexure II.
The sub-group recommends that this listmay be placed in the website of
IRDA, which may act as guidance for insurance companies coming out
with issues.

2.1.3. Disclosure of Financial Information:


It is observed that the components of financial statements of insurance
companies are significantly different from other companies. An insurance
company prepares two types of income accounts i.e. policy holder’s
account (Revenue account) and shareholder’s account (profit and loss
account). IRDA has prescribed the formats in which the financials of the
insurance companies need to be submitted to them on a periodic basis.
On the other hand, provisions regarding disclosure of financial information
in SEBI (ICDR) Regulations are general and are applicable to all
companies. The subgroup noted that banking companies follow format of
financial statements prescribed under Banking Regulation Act, 1949 and
similarly insurance companies may follow formats specified by IRDA.
Sub-group recommended that the financial disclosure for insurance
companies may be as per the format specified by IRDA.

2.1.4. Specific Disclosures which are followed in other Jurisdictions:


The sub-group carried out an analysis of the specific disclosures which
are followed in other jurisdictions. A detailed comparative chart along with
the comments of the IRDA on each disclosure item in case of General
insurance companies is attached as Annexure III. It is observed that the
extant disclosure norms prescribed by IRDA are by and large at par with
the international practice in vogue in various jurisdictions.

The sub-group recommends that following disclosures shall be included in


the offer documents of General insurance companies
i. Gross premium- along with Geographic segmentation

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ii. Cross selling
iii. Distribution network
iv. Claims outstanding with age-wise and type-wise break-up
a. Outstanding upto 180 days
b. Outstanding more than 180 days and for each year upto 5 years
c. 5 years and above
v. Reinsurance
a. Number of re- insurers with break-up- domestic and foreign
b. Type of arrangement with Reinsurers
i. Treaty Reinsurance-
1. Proportional treaties
a. Obligatory and
b. Others
2. Non-proportional Treaties
a. Excess of Loss
b. Stop Loss
c. Any other
ii. Facultative Reinsurance.-
iii. Obligatory and
iv. Others

c. Reinsurance balances outstanding- age-wise


vi. Maximum probable Loss Ratio
vii. Incurred but not reported IBNR) /Incurred but not enough reported
(IBNER)
The sub-group recommends that SEBI/ IRDA may mandate the disclosure of
aforementioned list of disclosure items in the offer documents of insurance
companies through circular or standard observations
The sub-group recommends that report of an independent actuary on the
Economic Capital of the insurance company should be made a part of the
offer document. The contents and format of the reports and criteria for
actuaries who are authorized to prepare such report may be prescribed by
IRDA.
The sub-group recommends that SEBI may mandate the disclosure of
aforementioned list of disclosure items in the offer documents of insurance
companies through circular or standard observations.
2.1.5. Glossary of terms used in the Insurance Industry:
In order to familiarize the investors with terms used in insurance industry
and to standardize the definition and understanding of such terms, the
sub-group felt that a “Glossary of the terms used in Insurance industry”

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may be prepared. IRDA provided a “Glossary of the terms used in
Insurance industry” which is placed in Annexure IV. This glossary of
terms may act as guidance for insurance companies coming out with
issues.

The sub group recommends that the glossary may be placed on the
website of IRDA.

2.1.6. Continuous Disclosure Requirements for Insurance Companies:


In the report submitted to SCODA, sub-group had suggested a separate
format for continuous financial disclosure to be made by insurance
companies pursuant to listing on stock exchanges. The sub-group
recommended that the said formats may be incorporated in clause 41 of
the listing agreement, which shall be used by insurance companies for
publishing and filing financial information with stock exchanges on a
periodic basis.
After deliberating on the same SCODA suggested the sub-group to re-
work on the formats specified in Clause 41 of the Listing Agreement and
retain only critical portions, as the same needs to be published in the
newspapers. Further, SCODA suggested that the sub-group should
classify those disclosures which need to be filed with the exchanges and
those which need to be published.
Sub-group deliberated the matter and felt that finalization of continuous
disclosures requirements would be more appropriate once the insurance
companies file the offer document with SEBI as it would help to identify
the critical items for disclosure purpose based on the materiality of the
information provided in the offer document. In view of above the subgroup
suggested that the formats for continuous disclosures to be made by the
insurance companies may be prescribed once the insurance companies
file their offer documents with SEBI for public issues.
Other issues raised by IRDA:
The following issues raised by IRDA have been dealt with in the Report of the
SCODA in respect of Life Insurance Companies:-
 Advertisements regarding public issues
 Objects of issue
 Issuance of partly-paid shares
 Definition of Promoters
 Key Management Personnel
 Disclosure with regard to uniform financial denomination

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3. Other recommendations of Subgroup
Grievance Redressal Mechanism
The insurance business is entirely customer oriented therefore, the success of
the business is heavily depends on the customer satisfaction. In view of this the
sub-group felt that every General insurer shall make a brief description of the
Grievance Redressal Mechanism under the Business Description of the Insurer
in the offer document. The brief description of the Grievance Redressal
Mechanism may cover the
a) Turn Around Time for the complaints
b) Steps taken to minimize the complaints
c) Trend analysis of the complaints
d) Numbers of cases in which ombudsmen awarded decision against the
insurers and its year wise break-up.
e) Segregation of the complaints (to the extent possible) based on the mode
of receipt viz written complaints, over telephone, referred by the Authority
or any other mode.
In addition, disclosure of summary of the complaints received during the last
three years and its redressal may also be mandated in the offer document. The
format for such disclosure may be as per Annexure V

*****

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ANNEXURE I: INDUSTRY SPECIFIC RISK FACTORS FOR INSURANCE SECTOR
(GENERAL INSURANCE)
General
No insurance company is yet listed in the Indian capital market. Insurance sector
has a unique operation and it presents various types of unique risks. Investors
should read the section on “Insurance Industry” to acquaint themselves with the
key features of this sector. In addition, investors should consider the risks
associated with the industry in which the Company operates as well as those
relating specifically to it.
Interest Rate Risk
Changes in interest rates may materially and adversely affect our profitability. The
profitability of some of the products and investment returns of insurance companies are
highly sensitive to interest rate fluctuations, and changes in interest rates could
adversely affect our investment returns and results of operations. A rise in interest rates
would adversely affect our shareholders’ equity in the immediate fiscal year due to a
decrease in the fair value of our fixed income investments. Conversely, a decline in
interest rates could result in reduced investment returns on our newly added assets and
have an adverse impact on our profitability. During periods of declining interest rates,
our average investment yield will decline as our maturing investments, as well as bonds
that are redeemed or prepaid to take advantage of the lower interest rate environment,
are replaced with new investments carrying lower yields, which would adversely affect
our profitability
Reason : it is not a risk for general insurers since the tenure of general insurance
policies will generally be one year.
Liquidity Risk
Differences in future actual claims results from the assumptions used in pricing
and establishing reserves for our insurance and annuity products may materially
and adversely affect our earnings. Our earnings depend significantly upon the extent
to which our actual claims results are consistent with the assumptions used in setting
the prices for our products and establishing the liabilities in our financial statements for
our obligations for future policy benefits and claims. Our assumptions include those for
investment returns, expenses, as well as macro-economic factors such as inflation. To
the extent that trends in actual claims results are less favorable than our underlying
assumptions used in establishing these liabilities, and these trends are expected to
continue in the future, we could be required to increase our liabilities. Any such increase
could have a material adverse effect on our profitability and, if significant, our financial
condition. Any material impairment in our solvency level could change our customers' or
our business associates' perception of our financial health, which in turn could adversely
affect our sales, earnings and operations.

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Investments Risk
We may incur significant losses on our investments, which may cause our
investment income to decrease, and could have a material adverse effect on our
financial condition and results of operations. We primarily invest in fixed income
products such as term deposits, government bonds, subordinated bonds issued by
financial institutions, corporate bonds and equity. Our investment returns, and thus our
profitability, may be adversely affected from time to time by conditions affecting our
specific investments and, more generally, by market fluctuations as well as general
economic, market and political conditions. In particular, our ability to make a profit on
our insurance products depends in part on the returns on investments supporting our
obligations under these products, and the value of specific investments may fluctuate
substantially. Future movements in market interest rates, unfavorable conditions in the
Indian capital market or other factors may cause our investment income to decrease
significantly, and could have a material adverse effect on our financial condition and
results of operations.
Catastrophic Losses Risk
Catastrophic losses could materially reduce our profitability or cash flow. Our
insurance operations expose us to claims arising out of catastrophes. Earthquakes,
typhoons, floods, wind, fires, explosions, industrial accidents, epidemics, terrorist
attacks, and other events may cause catastrophes, and the occurrence and severity of
catastrophes are inherently unpredictable. It is possible that both the frequency and
severity of natural disasters may increase in the future. We establish reserves only
after an assessment of potential losses relating to catastrophes that have taken place.
However, we cannot assure you that such reserves will be sufficient to pay for all
related claims. Although we carry some reinsurance to reduce our catastrophe loss
exposures, due to limitations in the underwriting capacity and terms and conditions of
the reinsurance market as well as difficulties in assessing our exposures to
catastrophes, this reinsurance may not be sufficient to protect us adequately against
losses. As a result, one or more catastrophic events could materially reduce our profits
and cash flows and harm our financial condition.
Reinsurance Risk
If we are not able to obtain reinsurance on a timely basis or at all, we may be
required to bear increased risks or reduce the level of our underwriting
commitments. Our ability to obtain reinsurance on a timely basis and at a reasonable
cost is subject to a number of factors, including prevailing market conditions that are
beyond our control. The availability and cost of reinsurance may affect the volume of
our business as well as our profitability. In particular, we may be unable to maintain our
current reinsurance coverage or to obtain other reinsurance coverage in adequate
amounts and at favorable rates. If we are unable to renew our expiring coverage or to
obtain new reinsurance coverage, either our net risk exposure would increase or, if we
are unwilling to bear an increase in net risk exposures, our overall underwriting capacity
and the amount of risk we are able to underwrite would decrease. To the extent we are
not able to obtain reinsurance on a timely basis and at a reasonable cost, or at all, our

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business, financial condition and results of operations would be materially and
adversely affected.
A default by one or more of our reinsurers could materially and adversely affect
our financial condition and results of operations. Like other major insurance
companies in the world, we transfer some of the risk we assume under the insurance
policies we underwrite to reinsurance companies in exchange for a portion of the
premiums we receive in connection with the underwriting of these policies. Although
reinsurance makes the reinsurer liable to us for the risk transferred, it does not
discharge our liability to our policyholders. As a result, we are exposed to credit risk with
respect to reinsurers in all lines of our insurance business. In particular, a default by one
or more of our reinsurers under our existing reinsurance arrangements would increase
our financial losses arising out of a risk we have insured, which would reduce our
profitability and may adversely affect our liquidity position. In the event of a catastrophic
loss that affects a significant number of Indian insurers, the reinsurers may not b able to
pay us on a timely basis, or at all.
Economic Capital
The Economic Capital information we present in this prospectus is based on
several assumptions and may vary significantly as those assumptions are
changed. In order to provide investors with an additional tool to understand our
economic value and business results, we have disclosed information regarding our
embedded value, as discussed in the section entitled, "Embedded Value". These
measures are based on a discounted cash flow valuation determined using commonly
applied actuarial methodologies. Standards with respect to the calculation of embedded
value are still evolving, however, and there is no single adopted standard for the form,
determination or presentation of the embedded value of an insurance company.
Moreover, because of the technical complexity involved in embedded value calculations
and the fact that embedded value estimates vary materially as key assumptions are
changed, you should read the discussion under the section entitled "Embedded Value".
You should use special care when interpreting embedded value results and should not
place undue reliance on them.
Regulatory Risks
Regulations may restrict our ability to operate. The insurance industry is subject to
extensive regulation by IRDA. IRDA has broad administrative powers to regulate many
aspects of the insurance business, which include premium rates, marketing practices,
advertising, policy forms and capital adequacy. IRDA is concerned primarily with the
protection of policyholders rather than shareholders. Insurance laws and regulations
impose restrictions on the amount and type of investments, prescribe solvency
standards that must be met and maintained and require the maintenance of reserves.
Premium rate regulation is common across all of our lines of business and may make it
difficult for us to increase premiums to adequately reflect the cost of providing insurance
coverage to our policyholders. In our underwriting, we rely heavily upon information
gathered from third parties such as credit report agencies and other data aggregators.

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The use of this information is also highly regulated and any changes to the current
regulatory structure could materially affect how we underwrite and price premiums.
Our business is highly regulated and we may be materially and adversely affected
by future regulatory changes. Our businesses are regulated primarily by IRDA and
we are subject to laws regulating all aspects of our insurance business. Compliance
with applicable laws, rules and regulations may restrict our business activities.
Furthermore, these laws, rules and regulations may change from time to time and we
cannot assure you that future legislative or regulatory changes, including deregulation,
would not have a material adverse effect on our business, financial condition and results
of operations. We cannot predict at this time the effect of potential regulatory changes
on our business and profitability. Moreover, failure to comply with any of the numerous
laws, rules and regulations to which we are subject could result in fines, suspension or,
in extreme cases, business license revocation, which could materially and adversely
affect us. In particular, future laws, rules and regulations, or the interpretation of existing
or future laws, rules and regulations, may have a material adverse affect on our
business, financial condition and results of operations.
The Indian insurance regulatory regime is undergoing significant change as it moves
toward a more transparent regulatory process. Some of these changes may result in
additional costs or restrictions on our activities. In particular, some of the changes may
require us to take additional steps to comply with new rules and regulations on a timely
basis. We cannot assure you that we will be able to achieve full compliance with any
such new rules and regulations within any prescribed timeframe, and any such
compliance may result in our incurring increased compliance and other costs. Moreover,
because the terms of our products are subject to regulations, changes in regulations
may affect our profitability on the policies and contracts we issue.
Regulatory investigations and the resulting sanctions or penalties may adversely
affect our reputation, business, results of operations and financial condition. We
may also be subject to regulatory actions from time to time. A substantial legal liability or
a significant regulatory action could have an adverse effect on us or cause us
reputational harm, which in turn could harm our business prospects. We are subject to
periodic examinations by IRDA, which may impose sanctions, fines and other penalties
on us. If IRDA, in connection with their future audits or examinations, requires us to
take corrective measures or impose administrative penalties on us or if as a result we
become the target of negative publicity, our corporate image and reputation and the
credibility of our management may be materially and adversely affected.
Implementation of International Financial Reporting System (IFRS) Insurance Sector
will converge to IFRS once the revised standard on Insurance Contracts will be in
place. New accounting pronouncements may significantly affect our financial
statements for the current and future years, and may materially and adversely
affect our reported net profits and shareholders’ equity, among other things.

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Solvency Risks
Our ability to comply with minimum solvency requirements stipulated by IRDA is
affected by a number of factors, and our compliance may force us to raise
additional capital, which could be dilutive to you, or could reduce our growth. We
are required by IRDA regulations to maintain our solvency at a level in excess of
minimum solvency levels. Our minimum solvency is affected primarily by the policy
reserves we are required to maintain which, in turn, are affected by the volume of
insurance policies we sell and by regulations on the determination of statutory reserves.
Our solvency is also affected by a number of other factors, including the profit margin of
our products, returns on our investments, underwriting and acquisition costs, and
policyholder and shareholder dividends. If we continue to grow rapidly in the future, or if
the required solvency level is increased in the future, we may need to raise additional
capital to meet our solvency requirement, which would be dilutive to you. If we are not
able to raise additional capital, we may be forced to reduce the growth of our business.
Legal Risk
We may suffer losses from unfavorable outcomes from litigation and other legal
proceedings. Legal actions are inherent in our businesses and operations. We are
subject to litigation and other legal proceedings as part of the claims process, the
outcomes of which are uncertain. We maintain reserves for these legal proceedings as
part of our reserves. We also maintain separate reserves for legal proceedings that are
not related to the claims process. In the event of an unfavorable outcome in one or
more legal matters, our ultimate liability may be in excess of amounts we have currently
reserved for and such additional amounts may be material to our results of operations
and financial condition.
As industry practices and legal, judicial, social and other conditions change, unexpected
and unintended issues related to claims and coverage may emerge. These issues may
adversely affect our financial condition and results of operations by either extending
coverage beyond our underwriting intent or by increasing the number and size of
claims. In some instances, these changes may not become apparent until some time
after we have issued insurance contracts that are affected by the changes.
Competition Risk
Competition in the Indian insurance industry is increasing and our business and
prospects will be harmed if we are not able to compete effectively as well as have
a material adverse effect on our financial condition and results of operations by,
among other things: reducing our market share in our principal lines of business;
decreasing our margins and spreads; reducing the growth of our customer base;
increasing our policy acquisition costs; increasing our operating expenses, such
as sales and marketing expenses; and increased turnover of management and
sales personnel. Some of our competitors may have advantages over us in one or
more areas, such as financial strength, management capabilities, resources, operating
experience, market share, distribution channels and capabilities in pricing, underwriting
and claims settlement. In addition, we face potential competition from commercial

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banks, some of which invest in, or form alliances with, existing insurance companies to
offer insurance products and services that compete against those offered by us. These
commercial banks may also establish subsidiaries of their own to engage in insurance
business directly. Such potential competitors may further increase the competitive
pressures we experience.
Competition from foreign-invested insurance companies is likely to increase in
the future, as restrictions on their operations in India are relaxed. Moreover,
foreign-invested insurance companies may have access to greater financial,
technological or other resources than we do.
We are likely to face increasing competition from companies offering products
that compete with our own. In addition to competition from insurance companies, we
face competition from other companies that may offer products that compete with our
own, including real estate companies, mutual fund companies and other financial
services providers.
Market Growth Risk
The rate of growth of the Indian insurance market may not be as high or as
sustainable as we anticipate.
The rate of growth of the Indian insurance market may not be as high or as sustainable
as we anticipate. This may be the case even though we expect the insurance market in
India to expand and the penetration rate to rise with the growth of the Indian economy
and household wealth, continued social welfare reform, demographic changes and the
opening of the Indian insurance market to foreign participants. The impact on the Indian
insurance industry of certain trends and events, such as the pace of economic growth in
India and the ongoing reform of the social welfare system is unpredictable and
consequently, the growth and development of the Indian insurance market is subject to
a number of uncertainties that are beyond our control.
An economic slowdown in the country, such as the one experienced following the
recent global financial crisis, may reduce the demand for our products and
services and have a material adverse effect on our results of operations, financial
condition and profitability. In an economic downturn characterized by higher
unemployment, lower family income, lower corporate earnings, lower business
investment and lower consumer spending, the demand for our insurance products and
services could be adversely affected. In addition, we may experience an elevated
incidence of claims and lapses or surrenders of policies. Our policyholders may also
choose to defer paying insurance premiums or stop paying insurance premiums
altogether.If the Indian economy continues to experience a slower growth or a
significant downturn, our results of operations and financial condition would be
materially and adversely affected.

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Agents’ Risk
All of our insurance agents are required to obtain a qualification certificate from
IRDA; any changes in the regulatory policies with regard to the agents may
materially and adversely affect our business. Moreover, our growth is dependent
on our ability to attract and retain productive agents. A substantial portion of our
business is conducted through agents. Competition for agents from insurance
companies and other business institutions may force us to increase the compensation
of our agents and sales representatives, which would increase operating costs and
reduce our profitability.
If we are unable to develop other distribution channels for our products, our
growth may be materially and adversely affected. Banks and post offices are rapidly
emerging as some of the fastest growing distribution channels in India. We do not have
exclusive arrangements with any of the banks and post offices through which we sell
insurance and thus our sales may be materially and adversely affected if one or more
banks or post offices choose to favor our competitors' products over our own.
Agent misconduct is difficult to detect and deter and could harm our reputation
or lead to regulatory sanctions or litigation costs. Agent misconduct could result
in violations of law by us, regulatory sanctions, litigation or serious reputational
or financial harm. Misconduct could include engaging in misrepresentation or
fraudulent activities when marketing or selling insurance policies or annuity
contracts to customers; hiding unauthorized or unsuccessful activities, resulting
in unknown and unmanaged risks or losses; or otherwise not complying with
laws or our control policies or procedures. We cannot always deter agent
misconduct, and the precautions we take to prevent and detect these activities may not
be effective in all cases. We cannot assure you that agent misconduct will not lead to a
material adverse effect on our business, results of operations or financial condition.
Other Risks

– We depend on select actuarial personnel and could be materially and adversely


affected by the loss of their services.

– Prospective investors should acquaint themselves with the Financial Statements,


drawn specifically for the insurance companies.

– Contingent liabilities could adversely affect the financial condition and results of
operations of the insurance company.

– Investment in the relatives/associates of the Promoters/ Directors of the


Insurance Company can be detrimental to the interests of our company.

– Risk with reference to concentration by region/type of policies of the Insurance


Company

– Insurance Companies are subject to restrictions on payments of dividends


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– We will incur increased costs as a result of being a listed company.

The insurance industry is cyclical, which may impact our results. The insurance
industry is cyclical. Although no two cycles are the same, insurance industry cycles
have typically lasted for periods ranging from two to six years. The segments of the
insurance markets in which we operate tend not to be correlated to each other, with
each segment having its own cyclicality. Periods of intense price competition due to
excessive underwriting capacity, periods when shortages of underwriting capacity
permit more favorable rate levels, consequent fluctuations in underwriting results and
the occurrence of other losses characterize the conditions in these markets. Historically,
insurers have experienced significant fluctuations in operating results due to volatile and
sometimes unpredictable developments, many of which are beyond the direct control of
the insurer, including competition, frequency of occurrence or severity of catastrophic
events, levels of capacity, general economic conditions and other factors. This may
cause a decline in revenue at times in the cycle if we choose not to reduce our product
prices in order to maintain our market position, because of the adverse effect on
profitability of such a price reduction. We can be expected therefore to experience the
effects of such cyclicality and changes in customer expectations of appropriate premium
levels, the frequency or severity of claims or other loss events or other factors affecting
the insurance industry that generally could have a material adverse effect on our results
of operations and financial condition.
The insurance and related businesses in which we operate may be subject to
periodic negative publicity, which may negatively impact our financial results.
The nature of the market for the insurance and related products and services we
provide is that we interface with and distribute our products and services ultimately to
individual consumers. There may be a perception that these purchasers may be
unsophisticated and in need of consumer protection. Accordingly, from time to time,
consumer advocate groups or the media may focus attention on our products and
services, thereby subjecting our industries to periodic negative publicity. We may also
be negatively impacted if another company in one of our industries engages in practices
resulting in increased public attention to our businesses. Negative publicity may result in
increased regulation and legislative scrutiny of industry practices as well as increased
litigation, which may further increase our costs of doing business and adversely affect
our profitability by impeding our ability to market our products and services, requiring us
to change our products or services or increasing the regulatory burdens under which we
operate.
The impact of investigations of possible anti-competitive practices by the
company cannot be predicted and may have a material adverse impact on our
results of operations, financial condition and financial strength ratings.
We may be exposed to environmental liability from our commercial mortgage
loan and real estate investments. As a commercial mortgage lender, we customarily
conduct environmental assessments prior to making commercial mortgage loans
secured by real estate and before taking title through foreclosure to real estate
collateralizing delinquent commercial mortgage loans held by us. Based on our

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environmental assessments, we believe that any compliance costs associated with
environmental laws and regulations or any remediation of affected properties would not
have a material adverse effect on our results of operations or financial condition.
However, we cannot provide assurance that material compliance costs will not be
incurred by us.
The effects of emerging claims and coverage issues on our business are
uncertain. As industry practices and legal, judicial, social and other conditions change,
unexpected and unintended issues related to claims and coverage may emerge. These
issues may adversely affect our business by either extending coverage beyond our
underwriting intent or by increasing the number or size of claims. In some instances,
these changes may not become apparent until some time after we have issued
insurance or reinsurance contracts that are affected by the changes. As a result, the full
extent of liability under our insurance and reinsurance contracts may not be known for
many years after a contract is issued. Recent example of emerging claims and
coverage issues include:

 larger settlements and jury awards in cases involving professionals and


corporate directors and officers covered by professional liability and directors and
officers liability insurance and

 a growing trend of plaintiffs targeting property and casualty insurers in class


action litigation related to claims handling, insurance sales practices and other
practices related to the conduct of our business.
We may be unable to accurately predict benefits, claims and other costs or to
manage such costs through our loss limitation methods, which could have a
material adverse effect on our results of operations and financial condition. Our
profitability depends in large part on accurately predicting benefits, claims and other
costs, including medical and dental costs, and predictions regarding the frequency and
magnitude of claims on our disability and property coverage. It also depends on our
ability to manage future benefit and other costs through product design, underwriting
criteria, utilization review or claims management and, in health and dental insurance,
negotiation of favorable provider contracts. Utilization review is a review process
designed to control and limit medical expenses, which includes, among other things,
requiring certification for admission to a health care facility and cost-effective ways of
handling patients with catastrophic illnesses. Claims management entails the use of a
variety of means to mitigate the extent of losses incurred by insureds and the
corresponding benefit cost, which includes efforts to improve the quality of medical care
provided to insureds and to assist them with vocational services. The aging of the
population and other demographic characteristics and advances in medical technology
continue to contribute to rising health care costs. Our ability to predict and manage
costs and claims, as well as our business, results of operations and financial condition
may be adversely affected by:
- changes in health and dental care practices;

- inflation;

Page | 17
- new technologies;

- the cost of prescription drugs;

- clusters of high cost cases;

- changes in the regulatory environment;

- economic factors;

- the occurrence of catastrophes; and

- numerous other factors affecting the cost of health and dental care and the
frequency and severity of claims in all our business segments.
The judicial and regulatory environments, changes in the composition of the kinds of
work available in the economy, market conditions and numerous other factors may also
materially adversely affect our ability to manage claim costs. As a result of one or more
of these factors or other factors, claims could substantially exceed our expectations,
which could have a material adverse effect on our results of operations and financial
condition.
As industry practices and legal, judicial, social and other environmental conditions
change, unexpected and unintended issues relating to claims and coverage may
emerge. These issues could materially adversely affect our results of operations and
financial condition by either extending coverage beyond our underwriting intent or by
increasing the number or size of claims or both. We may be limited in our ability to
respond to such changes, by insurance regulations, existing contract terms, contract
filing requirements, market conditions or other factors.

Page | 18
Annexure II: Overview of Insurance Industry
1. Introduction

2. Background- A brief history about Insurance Industry


2.1. Pre-Nationalization
2.2. Nationalization of the Sector
2.3. Insurance Reforms
2.4. Interim Insurance Regulatory Authority
2.5. Insurance Regulatory and Development Authority
2.6. Approach to Reforms

3. Global Insurance Environment- A brief on global and domestic scenario


covering Insurance Penetration, Density, growth of Industry etc
3.1. Global Insurance Environment
3.2. Domestic Market Overview

4. Industry Outlook
4.1. General insurer
4.1.1. Market Share (% share)
4.1.2 Growth of Business

5. Analysis of Trends
5.1. General Insurance
5.1.1. Tariff and non-tariff Products
5.1.2. Enlarged Coverage
5.1.3. Introduction of New Products
5.1.4. Reinsurance Supported Products
5.2. Health Insurance
5.2.1. Enlarged Coverage
5.2.2. Introduction of New Products
5.3 Reinsurance Business

6. Investment of Funds by the Insurance Industry


6.1 Investment Pattern

Page | 19
7. FDI in Insurance Sector

8. Intermediaries
8.1. Commission Structure
8.1.1 General Insurers

9. Changes in Insurance Legislation


9.1. Changes in Insurance Legislation
9.2. Regulatory Issues and Changes
9.3. Consumer Related Changes
9.4. Removal of Redundant Clauses
9.5. Enhancement of Enforcement Powers and Levy of Penalties

10. Corporate Governance Guidelines for Insurance Companies

11. Conclusion

Page | 20
ANNEXUREIII: Comparison table on disclosures made in offer documents of General insurance companies in other jurisdictions
Particular Allied World Standard Dhaka Insurance Assurance- IRDA REMARKS Whether
Assurance Company Insurance Limited Company Limited
Holdings Limited common
(July 2006-bermuda) (July 2008- Dhaka) item for
life and
nonlife
insurance
companies

( Yes / No)

1 Business Description

Line of Business Property (27%) and Fire, Marine, motor, Fire, Marine, motor, and seems to be a YES
Casualty (40%) and miscellaneous miscellaneous composite company.
insurance and The detail as Health
Reinsurance (23%) product, Life product,
other group products
given.

1.a Gross Premium Segment wise detail Only at company Segment wise detail Segment wise detail Covering various business YES
given level no segment given given line and segment wise
wise breakup given details. Also disclosure on
business underwritten on
geography wise basis

1.b Cross selling Not available Not available Not available Segment wise detail TO BE DEFINED BY IRDA -- YES
given Between insurance & banking
(details of referrals and
bancassurance to be
provided)

1.c Distribution network Brokers Network of Through head office and Brokers, Agents and Agents, corporate agents, YES
professional staff branch office – no further other distribution net bancassurance, brokers and
and commission details given work detail along with Referrals. The same will be
agents- no details the business generated specified by IRDA as an
given through each channel additional disclosure.

Page | 21
Particular Allied World Standard Dhaka Insurance Assurance- IRDA REMARKS Whether
Assurance Company Insurance Limited Company Limited
Holdings Limited common
(July 2006-bermuda) (July 2008- Dhaka) item for
life and
nonlife
insurance
companies

( Yes / No)

given.

1.d Retention Ratio Ratio not clearly given Given Covered in the Credit Already covered in KEY N
but can be inferred Rating Report analytical ratio specified by
IRDA

1.e Growth Ratio Not Applicable Not Applicable Not Applicable Already covered in KEY N
analytical ratio specified by
IRDA

1.f Underwriting ratio Underwriting Profit/Loss Underwriting Underwriting Profit/Loss Segment wise ratio Already covered in KEY N
% is given Profit/Loss % is % is given given analytical ratio specified by
given IRDA

2 Income Statement

2.a Gross Premium By different business Not available By different business line By different business Would be covered under the YES
line Line Revenue Statement specific
for General insurance
companies

2.b Net Premium By different business By different By different business line -do- is covered under the Revenue YES
line business line Statement specific for
General insurance companies

2.c Margin per product Not available Not available Not given Not given Not being captured at YES
line present. However, segment
wise disclosure have already

Page | 22
Particular Allied World Standard Dhaka Insurance Assurance- IRDA REMARKS Whether
Assurance Company Insurance Limited Company Limited
Holdings Limited common
(July 2006-bermuda) (July 2008- Dhaka) item for
life and
nonlife
insurance
companies

( Yes / No)

been specified.

2.d Loss Ratio Ratio given for the *Ratio given for the Not given Segment wise ratio Already covered in key N
company as a whole company as a whole given
analytical ratios specified
by IRDA

2.e Acquisition cost Ratio given for the Not available Not given Not given In India, it is a commission N
ratio company as a whole ratio, which is already
covered in key analytical
ratios specified by IRDA

2.f Expense ratio Ratio given for the Ratio given for the Management Exp ratio given for the same as above YES
company as a whole company as a whole allocation segment wise company as a whole
given

2.g Combined ratio Ratio given for the Ratio given for the Not given ratio given for the same as above N
company as a whole company as a whole company as a whole

3 Balance Sheet

Page | 23
Particular Allied World Standard Dhaka Insurance Assurance- IRDA REMARKS Whether
Assurance Company Insurance Limited Company Limited
Holdings Limited common
(July 2006-bermuda) (July 2008- Dhaka) item for
life and
nonlife
insurance
companies

( Yes / No)

3.a Investment Yield For overall investments For overall Briefly given in Credit Yield for each Already covered in the YES
investments rating report investment segment financial statement and the
given continuous disclosures. The
ratio is computed on
shareholders fund and
policyholders funds

3.b Investment portfolio Govt/ non-govt, ABS, Investments in No details given Detail given. Already covered in the YES
MBS ,fixed, hedge Fixed Deposit financial statements to be
fund, receipts (82%) and restated.
capital markets (
12%)

3.c Cost of liability Not available Not given Not given Not given In the Indian context, the only YES
form of capital presently
permitted is Equity. As such,
there is presently only the
notional cost of capital
involved. For the present,
disclosures in this context
may not be required.

4 Capital

4.a Capitalization Given Already covered as a part of YES


the financial statement.

Page | 24
Particular Allied World Standard Dhaka Insurance Assurance- IRDA REMARKS Whether
Assurance Company Insurance Limited Company Limited
Holdings Limited common
(July 2006-bermuda) (July 2008- Dhaka) item for
life and
nonlife
insurance
companies

( Yes / No)

4.b Solvency margin Given Given Given Broad Parameters and Covered in the key analytical YES
the overall compliance ratios prescribed by the
position given of Risk IRDA.
Based Capital Given

4.c Claims outstanding Given Estimated Liability in Outstanding for Though, covered in the NO
respect of outstanding company as a whole financial statement. However,
claims whether due or given age wise break-up of the
intimated is given same may also be included.
segment wise Including the trends for last
five years.

4.d Reinsurance Segment wise detail same as above NO


Balance given
Outstanding

5 Risk Management

5.a Market risk No comprehensive No comprehensive No comprehensive Covered Covered YES


disclosures briefly disclosures very disclosures very briefly
5.b Operational risk covered at various briefly mentioned in mentioned in Risk factors Covered YES
places Risk factors
5.c Credit risk Covered YES

5.d Liquidity risk Covered YES

5.e Reinsurance risk Same as above Same as above Same as above Covered NO

Page | 25
Particular Allied World Standard Dhaka Insurance Assurance- IRDA REMARKS Whether
Assurance Company Insurance Limited Company Limited
Holdings Limited common
(July 2006-bermuda) (July 2008- Dhaka) item for
life and
nonlife
insurance
companies

( Yes / No)

5.f Assets Liability Not available Not available Covered YES


Management

6 Investment

6.a Equity No details given. Only Cost- market value No details given. Only The investment in At present covered only in YES
brief line items and and gain/loss given brief line items equity (common stock) the financial statement. It is
maturity profile given for last three years suggested that the
given investment yield and the
industry wise bifurcation in
brief may also be captured.

6.b Bonds No details given. Only No details given. Only The investment in Already covered in the YES
brief line items and brief line items Bonds for last three periodical disclosures to be
maturity profile given years along with the made by the insurers.
return generated given However, the same may also
be covered in the IPO
Disclosures.

7 Reinsurance

7.a No. of reinsurers Value of reinsurance Major only one Not given- only broad Though, the no of Along with disclosure of the YES
ceded given details of reinsurance reinsurers has not information as indicated, the
arrangement given been given. overall strategy and
Confirmation that reinsurance policy of the
Domestic Details Not given Details Not given Details Not given reinsurance insurers and the types of NO

Page | 26
Particular Allied World Standard Dhaka Insurance Assurance- IRDA REMARKS Whether
Assurance Company Insurance Limited Company Limited
Holdings Limited common
(July 2006-bermuda) (July 2008- Dhaka) item for
life and
nonlife
insurance
companies

( Yes / No)

Foreign arrangement is with reinsurance treaties entered NO


reinsurer having rating into would also need to be
7.b Rating of reinsurers Not available Not available Not given of at least _A by AM indicated. YES
best is given.

7.c Exposure of Not available Not available Not given Total Exposure to YES
reinsurers reinsurer given

7.d Type of Not given Not given Not given Not given same as above NO
arrangement
/contract for re-
insurance

7.e Maximum Probable Not given Not given Not given same as above NO
Ratio

7.f Incurred but not Given Not given Not given same as above NO
reported/ Incurred
but not enough
reported

8 Interest rate Briefly mentioned Not available Not Given Given along with would form part of various YES
sensitivity detailed analysis risk factors. However, a
specific disclosure for
8.a Equity price Not available Not available Not Given interest rate sensitivity may YES
sensitivity be made

Page | 27
Particular Allied World Standard Dhaka Insurance Assurance- IRDA REMARKS Whether
Assurance Company Insurance Limited Company Limited
Holdings Limited common
(July 2006-bermuda) (July 2008- Dhaka) item for
life and
nonlife
insurance
companies

( Yes / No)

9 Management Report on internal control over financial reporting

Internal control Not available only very brief Not Given given Already covered as a part of YES
reporting mention- Audit MD&A
Committee handles
the same

10 Investment

10.a Classification Majorly Fixed income Investment is in Not Given Detailed classification Presently the portfolio is not YES
classified as Available FDR (82%)and along with return required to be segregated
for sale Capital Market generated on the same into HTM/HFT/AFS.
(18%) for last three years
given

10.b Valuation Available for sale Investments are Not Given Given along with The same is already covered YES
carried at market stated at their detailed analysis in the accounting policies
values as at balance acquisition costs and the basis of valuation of
sheet investments.

10.c Unrealized gains/ Disclosed net of taxes, NA Not Given Not given Manner of arriving at the YES
losses as “accumulated other unrealized gains / losses
comprehensive income” needs to be indicated for
as a separate better understanding of the
component of public at large.
shareholders’ equity

Page | 28
Particular Allied World Standard Dhaka Insurance Assurance- IRDA REMARKS Whether
Assurance Company Insurance Limited Company Limited
Holdings Limited common
(July 2006-bermuda) (July 2008- Dhaka) item for
life and
nonlife
insurance
companies

( Yes / No)

11 Others

11.a Deferred acquisition Amortized Not given Not given segment wise details In the Indian context, the YES
cost given acquisition costs are not
permitted to be deferred.
Thus, no disclosures are
required.

11.c Risk Based Capital Not Given Not Given Not Given given These prescriptions are YES
presently not applicable to
insurance companies in India

11.d Monitoring Bermuda Monetary Controller of Not Given given Already decided that no YES
Mechanism Authority insurance monitoring agency is
required and IRDA will play
the role of monitoring agency

12 Objects of the Issue

Purpose Repayment of loan and Will augment capital Strengthening the capital To reply the It is in line YES
general corporate base and will be base outstanding
purpose including used for investment indebtedness position
equity in subsidiary purpose

Page | 29
ANNEXURE IV: Glossary of terms used in Insurance Industry

GENERAL INSURANCE

Glossary
“1/24th method Under the annual basis of accounting, the provision for unearned
and 1/365th premiums is recognized to cover the proportion of retained premiums
method” written in a year which relate to the period of risk from the first date in
the following financial year to the subsequent date of expiry of policies.
Unearned premiums can be calculated on a time apportionment basis,
principally on either a daily or monthly pro rata basis. The 1/365th
method and 1/24th method are the main time apportionment methods
to calculate unearned premiums under the 1/365th method, the
unearned premium reserve is the aggregate of the unearned
premiums, calculated on a daily pro rata basis, in respect of the
premiums relating to the unexpired periods of the respective insurance
policies at the end of the financial period the 1/24th method is based
on the general assumptions that the premiums are spread uniformly
over the month and the average date of issue of all policies is the
middle of that month.
“accident year” The 12-month period in which loss events occurred, regardless of
when the losses are actually reported, booked or paid.
“actuaries” Specialists trained in mathematics, statistics and accounting who are
responsible for rate, reserve and dividend calculations and other
statistical studies
“agent” An individual who is appointed by an insurance company to sell
insurance policies on behalf of, and within the scope authorized by, the
insurance company, and who receives a commission from the
insurance company.
“broker” A brokerage firm which represents and negotiates insurance contracts
on behalf of the insured party, and who receives a commission from
the insurance company.
“capital Insurance coverage provided by a company insuring the risks of its
insurance” parent entity and/ or its associated corporations.
“captive insurer” An insurance company which carries on general insurance business
only and such business (1) does not relate to any liabilities or risks in
respect of Which persons are required by law to be insured and (2) is
restricted to the insurance and reinsurance of risks of the companies
within the same grouping of companies to which that company
belongs.
“case reserves” Reserves for claims and claims handling costs established with
respect to specific, individual reported claims.
“catastrophe “ A severe loss, usually involving risks such as earthquake, flood,
windstorm and other similar natural/ man-made disasters.
“catastrophe Loss and directly identified LAE resulting from catastrophes.
loss”

30
Glossary
“catastrophe A form of excess-of-loss reinsurance which, subject to a specified limit,
excess of –loss indemnified the ceding company for the amount of loss in excess of a
reinsurance” specified retention with respect to an accumulation of losses resulting
from an insured catastrophe. The actual reinsurance document is
called a “catastrophe cover”.
“cede” or When an insurer reinsures its risk with another insurer or reinsurer, it
”ceding “cedes” business.
company”
“claim” A demand made by an insured person or the beneficiary of an
insurance policy in respect of a loss which may come within the cover
provided on the sum insured by the policy.
“claims handling The expenses of settling general claims, including legal and other fees
costs” and general expenses.
“claims The total amount of loss and claims handling costs incurred by an
incurred” insurance company under a policy or policies, whether paid or unpaid.
“claims case reserves plus IBNR reserves
reserves”
“combined loss For the purpose of calculating the minimum solvency margin required
amount” by the CIRC, the sum of the loss paid, change in loss and LAE
reserves and loss paid for assumed reinsurance, less losses recovered
from reinsurance companies, salvage and other recoverable amounts.
“combined ratio” The sum of the loss ratio and the expense ratio for a general insurance
company or a reinsurance company. A combined ratio below 100
generally indicates profitable underwriting. A combined ratio over 100
generally indicates unprofitable underwriting. An insurance company
with a combined ratio over 100 may be profitable to the extent net
investment results exceed underwriting losses.
“commission” A payment to an agent or broker by an insurance company for service
in respect of a sale of an insurance product.
“compulsory Insurance which the State, by law or regulation, requires to be taken
insurance” up
“credit and Insurance that covers credit risk or exposure. Such insurance can be
guarantee divided into credit insurance and guarantee insurance. Credit
insurance” insurance is provided by an insurer to an obligee to cover the credit of
an obligor such that the insurer indemnifies the obligee against losses
caused by the obligor failing to perform its obligations under its
contract with the obligee. Guarantee insurance involves the provision
by an insurer, at the request of an obligor, of a guarantee in favour of
an obligee such that if the obligor does not perform its contractual
obligations and causes economic losses to the obligee, the insurer
indemnifies the obligee against the losses.
“deductible” The amount of loss that an insured retains.
“deferred Primarily commissions and underwriting and personnel expenses net
acquisition of reinsurance commissions recovered, which vary with and are
costs” primarily related to the production of new and renewal business, and

31
Glossary
which are deferred and amortized rateably over the terms of the
insurance policies.
“direct premium The amounts before government levies and surcharges charged by an
written” or insurer from insured in exchange for coverage provided in accordance
“direct with the terms of an insurance contract. It excludes all reinsurance
premiums premiums, either assumed or ceded.
written”
“excess of loss A form of non-proportional reinsurance under which the reinsurer
reinsurance agrees to reimburse the ceding company for all losses in excess of a
treaty” predetermined amount, subject to a predetermined maximum limit.
Premiums paid by the ceding company to the reinsurer for excess of
loss reinsurance are generally not in the same proportion to the claims
recovered by the ceding company from the reinsurer
“expense ratio” The ratio of business operating expenses to net earned premiums
“facultative The reinsurance of all or a portion of specific, individual risks to a
reinsurance” reinsurer on a case-by-case basis.
“general Also called “non-life insurance” or “property and casualty insurance”
insurance” and including insurance such as motor, personal accident, goods in
transit, employees’ compensation, other liabilities and property
insurance and medical insurance.
“gross Direct premiums written plus any reinsurance premiums assumed by
premiums the insurer
written”
“group , personal accident and medical insurance taken out for groups of
insurance” individuals (typically employees of a common employer).
“IBNR/ IBNER Reserves for estimated losses and loss adjustment expenses which
reserves” have been incurred but not yet reported to the insurer or reinsurer,
including future development of claims which have been reported to
the insurer or reinsurer but where the established reserves may
ultimately prove to be inadequate.
“long-tail” Insurance business with a relatively longer period of exposure to
potential claims and/or with a relatively longer period of settlement,
generally more than three years.
“long term Means any of the classes of insurance business which include, among
business” others, , t health, Contractor Risk, Engineer Risk etc.

“loss” An occurrence that is the basis for submission and/or payment of


claim. Losses may be covered, limited or excluded from coverage,
depending on the terms of the policy.
“loss and LAE Liabilities established by insurers to reflect the estimated cost of claims
reserves” incurred that the insurer will ultimately be required to pay in respect of
insurance it has written. Reserves
“loss adjustment The expenses of settling claims, including legal and other fees and the
expenses or portion of general expenses allocated to claim settlement costs. For
LAE” the purpose of calculating reserves, we only include external claims

32
Glossary
related expenses, such as fees for external legal advisors and external
claims adjustors.
“incurred claim The ratio of loss incurred net of reinsurance recovered to net premiums
ratio” earned.
“loss ratio” The ratio of a general insurance or reinsurance company’s incurred
claims and claims expenses to net earned premiums.
‘loss incurred” The total amount of loss and LAE incurred by an insurance company
under a policy or policies, whether paid or unpaid
“loss paid” The total amount of loss incurred and paid by insurance company
under a policy or policies.
“net written Gross written premiums for a given period less premiums ceded to
premiums” reinsurers during such period.
“net earned Net written premiums less the change in net unearned premium
premiums” reserves.
“net premiums Net premiums written less the change in net unearned premiums
earned” reserves.
non-proportional A reinsurance contract under which the reinsurance coverage of loss is
reinsurance not directly proportional to the loss of the ceding company. Generally,
treaty” non-proportional reinsurance is also known as “excess of loss
reinsurance”.
“penetration Direct written premiums as a percentage of GDP
rate”
“pool” An organization of insurers or reinsurers through which particular types
of risks are underwritten with premiums, losses and expenses being
shared in agreed-upon percentages.
“General General Insurance means Property and casualty insurance, which
insurance” includes property loss and damage insurance, liability insurance and
credit and guarantee insurance.
“premium” The amount charged on policies and contracts issued, renewed or
reinsured by an insurance company.
“premiums That portion of gross written premium in current and past periods
earned” which applies to the expired portion of the policy period, calculated by
subtracting changes in net unearned premium reserves from gross
written premiums.
Premium Ceded Means the premium payable to Reinsurer on ceding.
“property Insurance that provides coverage to a person with an insurable interest
insurance” in tangible property for that person’s property loss, damage or loss of
use.
“proportional A reinsurance contract under which the ceding company and the
reinsurance reinsurer share premiums and claims in agreed proportions.
treaty”
Policy Period The period of time in which a policy is in effect.
Probable The largest loss thought probable under an insurance policy; normally
Maximum Loss applied to material damage risks where the total sum insured is not
(PML): considered to be at risk from one loss event.

33
Glossary
“quota share” or Reinsurance where the insurer cedes an agreed-upon percentage of
“quota share liabilities, premiums and loss for each policy covered on a pro rata
reinsurance” basis.
“rate” or Consideration paid per unit of insurance as a percentage of insured
“premium rate” value.
“reinsurance” The sharing or spreading of a risk by an insurer ceding part of an
insured risk to a reinsurer.
“reinsurance A commission paid to an insurance company by a reinsurer.
commission”
“retained Gross premiums written less reinsurance premiums ceded.
premiums”
“retention” The risks kept and assumed by an insurer or reinsurer after ceding a
part of such risks to another reinsurance company. Losses in excess of
the retention level up to the outer limit of a reinsurance program, are
paid by the reinsurer. In proportional treaties, the retention may be a
percentage of the original policy’s limit. In excess-of-loss reinsurance,
the retention is a dollar amount of loss, a loss ratio or a percentage.
“risk unit” The maximum amount of loss that can arise from a single risk under a
single policy.
“salvage” The property or amount or money an insurer recovers through the sale
of property transferred to the insurer as a result of a loss payment.
“short-tail” Insurance business with a relatively shorter period of exposure to
potential claims and/or with a relatively shorter period of settlement,
generally less than three years.
“surplus treaty” A form of proportional reinsurance treaty whereby the reinsured cedes
and the reinsurer accepts that share of the risk which exceeds the
reinsured’s retention.
“third-party A liability owed to a claimant by the insured party.
liability”
“treaty Reinsurance of blocks of risks, whereby all risks within a certain class
reinsurance” or classes, and within the scope defined in the relevant reinsurance
agreement known as a treaty, are accepted by the reinsurer. Typically,
in treaty reinsurance, the direct insurer (that is, reinsured) has the
obligation to offer, and the reinsurer is obligated to accept, a specified
portion of all that type or category of risks originally written by the
insurer.
“turnover” Gross written premiums net of government levies and surcharges
and discounts and returns
“underwriting” The insurance function that is responsible for (1) assessing and
classifying the degree of risk a proposed insured party represents and
(2) making a decision concerning coverage of that risk. Also called risk
selection or selection of risks.
“underwriting The amount of exposure that an insurer or reinsurer is willing or able to
capacity” Or place at risk. Underwriting capacity may apply to a single risk, a line of
“underwriting business or an entire book of business. Underwriting capacity may be

34
Glossary
limit” constrained by legal restrictions, corporate restrictions or indirect
restrictions.

“underwriting The pre-tax profit-or loss experienced by an insurance company after


profit” or deducting net loss incurred, amortization of deferred acquisition costs,
“underwriting insurance protection expense and general and Administrative
loss” expenses from net premiums earned. This pre-tax profit or loss
includes reinsurance assumed and ceded but excludes Investment
income.
“unearned The portion of premiums that is allocable to the unexpired portion of
premiums” the policy term or paid in advance for insurance or reinsurance that
has not yet been provided.

35
ANNEXURE V

FORMAT FOR QUARTERLY DISCLOSURES ON CUSTOMERS AND


INTERMEDIARIES GRIEVANCES

Insurer Date:
(Rs in Lakhs)
Resolved
Sl Opening Fully Partial Outstandi
Particulars Additions Rejec
No. Balance * Accep Accep ng
ted
ted ted
Complaints made by
1A customers
a) Sales Related
Fiduciary
Non-fiduciary
New Business
b) Related
Fiduciary
Non-fiduciary
Policy Servicing
c) related
Fiduciary
Non-fiduciary
Claim Servicing
d) related
Fiduciary
Non-fiduciary
e) Others
Fiduciary
Non-fiduciary
Total-Fiduciary
Total -Non-Fiduciary
Complaints made by
1B intermediaries
Complaints made by
1A customers
a) Sales Related
Fiduciary
Non-fiduciary
New Business
b) Related
Fiduciary
Non-fiduciary
c) Policy Servicing

36
Resolved
Sl Opening Fully Partial Outstandi
Particulars Additions Rejec
No. Balance * Accep Accep ng
ted
ted ted
related
Fiduciary
Non-fiduciary
Claim Servicing
d) related
Fiduciary
Non-fiduciary
e) Others
Fiduciary
Non-fiduciary
Total-Fiduciary
Total -Non-Fiduciary
2 Ageing of
Outstanding Non-
Complaints Fiduciary Fiduciary
Complaints made by
customers
a) Less than 15 days
b) 16-30 days
c) 1-3 months
d) More than 3 months
Total
Complaints made by
intermediaries
Less than 15 days
16-30 days
1-3 months
More than 3 months
Total
* Opening balance should tally with the closing balance of the previous financial
year.

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