annual report 2009-10 - IRDA

ANNUAL REPORT 2009-10in financial systems. Equally there is a need forsystems to ensure and guard against excessive risktaking.7. Overall, in the United States, financial stability hasimproved, although pockets of vulnerability remain inthe banking system. While banks have been able toraise capital and expected demand appearsmanageable, additional capital may be needed toreverse recent de-leveraging trends and due to thepossibility of complying with the regulatory reformsunder way. The financial crisis has resulted insubstantial risks being transferred from private topublic balance sheets. The policy makers thus needto address issues which have arisen on account ofthe burden placed on public institutions. In Japan, anear-term disruption in the government bond marketremains unlikely. The stable domestic savings baseand healthy current account surplus reduce the needto attract external funding sources. However, overtime, the factors which are presently supporting theJapanese bond market - high private savings, homebias, and the lack of alternatives to yen-denominatedassets - are expected to erode as the population agesand the workforce declines.8. As against the mature markets, the emergingmarkets have remained resilient to the financial crisiswhich has hit the global markets. These markets alsocontinued to enjoy access to international capitalmarkets. The cross-border spillover effects werelimited to only regions with significant economic andfinancial links to the euro area. Given the projectedhealthy growth trends in these markets, and thecontinuing slowdown in advanced countries, theemerging markets have become increasinglyattractive to global investors. The shifts due to thestrong capital inflows could result in increased volatilityto these markets thereby raising concerns foreconomies which have been recipients of thesereallocations.9. As per the revised IMF estimates the crisis-relatedbank write downs between 2007 and 2010 stood atUSD 2.2 trillion in September, 2010. Further, bankshave made progress in recognising those write downs,with more than three-quarters of them alreadyreported, leaving a residual amount of approximatelyUSD 550 billion. As per projections, nearlyUSD 4 trillion of bank debt will need to be rolled overin the next 24 months.10. A review of the regulatory reforms brings to thefore the fact that much of the proposed financial reformagenda remains unfinished. While much of the failingsof the global financial system have been identified,countries have yet to deal with issues such as ‘tooimportant-to-failentities’, strengthening supervisoryincentives and resources, and developing the macroprudentialframework. Much of these regulatoryconcerns have centered on the banking sector,although the ripples of the spillover effects are likelyto be felt by the other segments of the financial sectoras well. There are also concerns around addressingissues around pro-cyclicality and limiting the systemiceffects of financial institutions other than those in thebanking sector.Insurance markets:11. As per the World Insurance Report published byreinsurance major Swiss Re, the global insurancepremium for the calendar year 2009 wasUSD 4066 billion, which is 1.1 per cent (inflationadjusted)lower than USD 4220 billion reported duringthe previous calendar year 2008. The share of lifeinsurance business was 57 per cent in total premiumcollection. While life insurance business collectedUSD 2331 billion as premium, the same for non-lifebusiness was USD 1735 billion. During 2009, thepremium in life insurance business fell by 2 per centon account of double digit decline in premiumcollection in USA and UK. However, compared to2008, when life insurance premium fell by 5.8 per cent,this is an improvement on account of the improvedsentiment in the calendar year 2009.12. During year 2010, it is expected that overallpremium growth in the industry will turn positive andprofitability and balance sheets will continue toimprove. The prospects for life insurance in 2010 arepromising as growth resumes in the sector. A furtherrecovery of the financial markets is likely to stimulatethe overall growth of unit-linked products and allowinsurers to continue strengthening their balancesheets.Indian insurance sector:13. Since opening up, the number of participants inthe industry has gone up from six insurers (including2