Successful Business Strategies for Insurers Entering and Growing in Emerging Markets

1. Successful Business Strategies for Insurers Entering and Growing in Emerging Markets Amman, Jordan June 2009

2. Insurance premium growth (%) Emerging Market Opportunity The importance of emerging markets is increasing. While insurance growth rates in mature markets, such as the U.S., UK, and Japan have fallen flat, insurance sector growth rates in emerging markets are rising rapidly. Key Observations • Insurance industry is experiencing higher growth in emerging markets compared with the developed economies • Over the past five years, insurance premiums of emerging economies such as India, China, Brazil have grown at CAGR of over 20% whereas those of mature markets such as US and Japan are below 5% • Gross domestic products in emerging markets are growing at a higher rate compared with the developed economies and are poised for higher growth in future • Emerging markets are underpenetrated providing huge potential for growth • In 2007, insurance penetration in India, Mexico, Brazil, and China was 3.8%, 1.9%, 1.3%, and 2.5% respectively CAGR India 31.7% Brazil 27.7% China 22.9% USA 3.8% Japan 0.8% Note: Growth indexed to base year 2002 With limited organic growth opportunities existing in their mature home markets, insurers have now started looking seriously at the opportunity provided by emerging markets Source: EIU, BMI Industry Reports, Datamonitor, IRDA

3. Insurers are responding to opportunity with significant investments Insurers are investing significant capital into emerging markets to tap growth opportunities, as illustrated by the recent dynamics of the Indian insurance industry. Indian Nonlife Market Share Change ($BN) Indian Life Market Share Change ($BN) $7.5 BN $14.6 BN $51.1 BN $2.2 BN $3.6 BN $7.1 BN Key Observations • Prior to 1999, the Indian Insurance sector was comprised of only public insurers – LIC in the Life segment and United India, New India, Oriental & National Insurance company in the Nonlife segment • In 2007, out of 21 life insurers ,18 are joint ventures with foreign players and out of 18 non life insurers, 13 are joint ventures with foreign players • In the joint ventures, foreign insurers can hold a maximum 26% ownership stake Source: IRDA, Deloitte Analysis

4. Unique challenges in emerging markets Success in emerging markets requires more than simply transferring existing business models to new geographies. Insurers must adapt to the challenges of very different operating environments.

5. Risks to emerging market entry Risks to emerging market entry In addition to the unique challenges posed by emerging markets, there are inherent business risks for entry to emerging markets. For insurance executives, “getting it right” amid the numerous challenges continues to be a major concern.

6. Elements of Successful Strategies Success Strategies Strategies for success in emerging markets In their paper entitled, “Successful Business Strategies for Insurers Entering and Growing in Emerging Markets,” authors Berry-Stölzle, Hoyt, and Wende provide valuable, data-driven insights for insurers that can help to inform an emerging market strategy. The author’s framework and analysis can be replicated by company leadership to survey an array of emerging market opportunities, determine the risk adjusted rate of return, and make smarter decisions on emerging market entry. • In addition to strategic characteristics, the authors isolated specific strategies for success that are positively correlated with certain characteristics found in emerging markets. Successful business strategies for entering emerging markets have the following elements in common: High growth rates, increased size, and an emphasis on life insurance When adjusted for country risk an additional two components are discovered: Lower financial leverage and mutual organization structure