Capital in Life Insurance Companies

1
Capital in Life Insurance Companies
Patrick Edwards, Head of Capital Management

• 21 May 2002

2
Disclaimer

• The material that follows is a presentation of
  general background information about the Banks
  activities current at the date of the
  presentation 21 May 2002. It is information given
  in summary form and does not purport to be
  complete. It is not intended to be relied upon as
  advice to investors or potential investors and
  does not take into account the investment
  objectives, financial situation or needs of any
  particular investor. These should be considered,
  with or without professional advice when deciding
  if an investment is appropriate.

3
Speakers Notes

• Speakers notes for these presentations are
  attached below each slide.
• To access them, you may need to save the slides
  in PowerPoint and view/print in notes view.

4
Agenda

• Major Product types
• Risks
• Business Currently Being Written
• Life Insurance Regulation
• Australian Life Companies
• Overseas Life Companies
• Conclusion

5
Major product types
6
Four risk categories
Life Insurance and Funds Management
Operational Risk
Insurance Risk
Market Risk
Credit Risk
Mortality Risk
Morbidity Risk
Business Risk
Event Risk
7
Personal Risk Risks
8
Group Risk Risks
9
Annuities Risks
10
Investment Unit Linked Risks
11
Investment Account Risks
12
Traditional Policy Risks
13
Business currently being written
14
Life insurance regulations in Australia

• Life Insurance Act 1995
• Australian Prudential Regulation Authority (APRA)
• Regulatory capital is calculated by statutory
  fund, not by company
• Two tier test solvency (published) and capital
  adequacy (unpublished)

15
Capital adequacy

• Capital Adequacy Liability
• Other Liabilities
• Resilience Reserve
• Inadmissible Assets Reserve
• New Business Reserve

16
Contribution to profit
17
Australian life companies
18
Australian life companiesCapital by Risk Type
19
Australian life companiesFuture capital
requirements
80
30
Annuities
Capital Released (Am)
Risk
Trad IA
Unit Linked
-20
-70
2003
2004
2005
2006
2007
-120
Years
20
Overseas life companiesCapital on local solvency
basis
21
Overseas life companies Capital on Australian
capital adequacy basis
22
Capital injections into life companies
23
Conclusions

• Risks identified, measured and managed
• APRA has realistic regulatory capital
  requirements
• Overseas regulatory capital requirements are more
  arbitrary
• In the near term, growth of risk business will
  absorb
• more capital than is released by closed book

24
Capital in Life Insurance Companies
Patrick Edwards, Head of Capital Management

• 21 May 2002