In Papua New Guinea policy makes up a small part of the overall economy when compared to external levels. The penetration rate as a share of GDP is under 2 %, while the global average is 7.5 %, according to the UN Development Programme. indemnity in the country is besides a sector of bang-up opportunity. Access is square given the regulations and low capital requirements, so international participation is high and newcomers are relatively free to enter. In accession, because penetration is abject, the marketplace is well placed to grow .
On the crunch, the sector is active and quickly evolving. Banks are showing an concern in getting involved in the business, new and innovative products are being introduced, micro-insurance is booming and local companies are seeking to further expand outside of the area. however, concerns remain. contest is dangerous and some companies may be undercutting the market, leading to a lack of margins in some lines, according to insurance agent Marsh Australia. Slower overall growth has meant slower premium growth, and economic troubles have the potential to weigh on the safety and wisdom of the sector. “ In the final five years, have gross written premiums gone up ? Yes, but not at the rate of the five former years, ” Ian Balfour, CEO of local insurance company Inspac PNG, told OBG .

Competitive Sector

indemnity in PNG is in some ways well developed and highly competitive. The Pacific nation of around 7.5m presently has 13 indemnity companies, one domestic reinsurer, and seven brokers, according to the Office of the Insurance Commissioner ( OIC ). Of the seven brokers, four are qualified to sell life policy products.

On the non-life side of the business, QBE is the oldest policy company in the market, having entered in 1899 as North Queensland Insurance, when it besides established a presence in Fiji. The company has grown in part through consecutive acquisitions over the years. It bought General Accident in 1998, Zurich Pacific Insurance Company in 2001 and Mitsui Sumitomo in 2013. QBE has three offices in the nation : in Port Moresby, Lae and Kokopo .
Pacific MMI was founded in 1998 as a joint venture between Motor Vehicles Insurance ( MVIL ), the provider of third-party liability insurance in the country, and Allianz New Zealand. Pacific MMI then acquired the policy book of Niugini Insurance. The company has been 100 % locally owned since 2009, when MVIL bought out the alien partner, though possession was recently transferred to state-owned Kumul Consolidated Holdings. Capital Life Insurance was formed in 1993, while Capital General was formed in 2009. The group ’ s shareholders are the Teachers Savings & Loans Society, Credit Corporation, Nambawan Super and Nasfund, with the last two being obsoleteness funds .
Century Insurance, which was in the first place founded in 1988 as a non-life insurance company in the Commonwealth of the Northern Mariana Islands and registered as a domestic insurance company in PNG in 2008. Its ownership was moved in 2008 to the group ’ mho parent company, Tan Holdings, a Saipan-based diversify pudding stone. Pacific Assurance Group was founded in 2006. It has offices in Port Moresby, Lae and Kokopo .
Inspac Insurance is a locally owned peculiarity insurance company founded in 2005. The caller ’ s shareholders include landowners, individuals and resource owners, and it offers a diverse range of products, including home, motor and personal accident, fire and perils, industrial specialization gamble, contractors ’ plant and equipment, contractors ’ gamble, workers ’ compensation, indebtedness and general place .

New Broker

other cosmopolitan insurers include Southern Cross Assurance, which was founded in 2011 and is locally owned ; National Teachers Insurance, which was founded in 2001 ; and Trans Pacific Assurance, which was founded in 2014. Croesus is besides on the OIC ’ s 2016 number of license insurers. The area has four animation insurance companies. In addition to Capital Life Insurance and Pacific MMI, there is Kwila Insurance Corporation and Life Insurance Corporation. Kwila Insurance was founded in 1977. Life Insurance Corporation was formed in 2003 and is in the same group as National Teachers Insurance. The insurance company provides a broad range of life and medical policies, including those targeting the freelance and rural individuals .
The country has seven brokers : Aon Risk Services, Marsh PNG, Kanda International Brokers & Risk Consultants, Insurance Partners, Niugini Islands Insurance Brokers, Asian Pacific Insurance Brokers and newly entrant Sunrise Insurance Brokers. Pacific Reinsurance was founded in 1997 as the nation ’ s first local reinsurance company .

regulation

The biography side of the business is governed by the Life Insurance Act of 2000. Under this act, biography policy is defined as a sign which covers the death of an person, investment accounts or provision for continuous disability. Contracts shorter than one class do not qualify, and the act besides established the cardinal bank as the governor. As such, the Bank of PNG licenses policy companies, is responsible for their regulation and supervision, and sets standards for the sector. Third-party indebtedness policy has been required since the legislate of the Motor Vehicles ( Third Party Insurance ) Act of 1974, which was amended in 2002. MVIL became a baffle entity in 2002 .
The general indemnity regulator is the OIC, and the subsector is governed by the Insurance Act of 1995. The OIC reports to the Department of Treasury. According to the act, all insurers, brokers and loss adjusters must be licensed. The act besides sets out how funds can be invested and how accounts are to be audited, and it requires that audited accounts be published in the National Gazette and submitted to the commissioner. general insurers must pay 1 % of their premiums to the commission .

Foreign Affairs

The Insurance Act of 1995 stipulates that all risks in PNG must be insured locally. The commissioner may grant exceptions, and is required to do sol if the cost of insuring in the nation is 17.5 % more than insuring with a accredited insurance company outside the area. however, this restriction is frequently ignored, and the commissioner issued a written warning in 2016 reminding companies that they are required to insure locally unless they received a specific exemption from the government or they are related to the PNG Liquefied Natural Gas ( LNG ) project. The detect read, “ The Office of the Insurance Commissioner wishes to inform these offenders that Section 36 of the Act prohibits placement of indemnity with unaccredited persons, whether they are a reinsurer, reinsurance broke insurance company or a retail broker for any insurable risk in PNG unless an exemption is granted. ”
“ They are placing business offshore without exhausting local capacity, ” Ludwig Repo, deputy indemnity commissioner at the IOC, told OBG. The commission has shown some flexibility when it comes to how risks are reinsured. For a time, companies were required to do therefore through the only local reinsurance company. But the policy was cursorily modified and a workaround was offered to the marketplace. Repo said, “ In a 2013 circular we required all gamble to be placed with a local reinsurer. But we relaxed that policy in 2014. We immediately ask them to get a quote from Pacific Re. If they can underwrite the risk, the risk should be placed with them. If they can not underwrite it, 100 % goes offshore. ”

candid To The World

The sector is open and welcomes alien investment, and there are no specific extraneous investing restrictions in place. however, certain steps must be taken for companies wishing to operate locally. They must be incorporated in the country ( though some foreign insurers are grandfathered to operate as branches ) and all insurance-related entities require authority to operate. This includes not entirely the insurance companies, but besides indemnity agents, brokers and passing adjusters .
When an investor buys more than 15 % of a life insurance company, the investor must have the blessing of the cardinal trust as a stockholder control. Standard fit-and-proper requirements are besides in the relevant laws and must be met. however, the sector is not closed, and basic das kapital requirements are relatively gloomy. According to Norton Rose, the minimum capital for general insurers is PGK2m ( $ 683,000 ), while it is PGK4m ( $ 1.4m ) for life insurers. “ The barriers to entry are not that eminent, ” Philip Tolley, managing director of Capital Insurance, told OBG .
The Independent Consumer and Competition Commission ( ICCC ) has some say in the operations of the sector and has been active recently. In early 2016 the monopolies body and MVIL entered into discussions about the increase in motive fomite premiums for the year. As a regulated entity, MVIL ’ second rates are controlled by the ICCC, and the new rates for 2016 seemed excessive and were the subjugate of populace complaints. The monetary value of registering a “ low risk ” vehicle had increased from PGK500 ( $ 171 ) a class to PGK1300 ( $ 444 ). By March 2016 the situation was resolved, with the MVIL announce that there had been a mistake with vehicle categorization .

Changes

capital policy has been particularly advanced in terms of expansion and growth. It has, for exemplar, been creating partnerships with local hospitals so that health insurance customers have better access to facilities when needed. The company is besides continuing to look at opportunities abroad, applying to open an insurance company in East Timor. Capital Insurance already has meaning business throughout the region, with operations in the Solomon Islands, Nauru, Fiji, Tonga and Vanuatu. One of the company ’ sulfur products has besides been internationally recognised. capital Insurance ’ s Haus Krai policy helps families of a dead person individual meet cultural obligations related to funeral ceremonies. These gatherings can be expensive and crusade families into debt.

coordination between the two sides of the business are fundamental to the policy. According to international ratings representation AM Best, the workers ’ compensation component is written by Capital Insurance ’ s non-life arm, while the death profit share is written by the liveliness caller. Two levels of coverage are offered – PGK5000 ( $ 1710 ) and PGK10,000 ( $ 3410 ) – and the wage out is set at three days, so the funds can be available for the families when most needed. Haus Krai was first offered in 2013 and the firm has announced that the introduction of the policy has been one of the drivers of sales emergence in the workers ’ compensation segment .
Some significant corporate moves are besides being considered or in the works. While AIG remains active agent in the area, it is expected to withdraw from the marketplace as it has stopped writing for some lines of commercial enterprise. however, their retreat may be more relate to the parent firm ’ mho priorities than the market itself, a lot as when Mitsui Sumitomo exited PNG in 2013 .

New Regulatory Framework

Bank South Pacific ( BSP ), the nation ’ second largest bank by far, has expressed interest in getting involved in the indemnity business, either immediately through a subsidiary company or through learning. BSP Life, a Fiji auxiliary of BSP, could be contribution of that development, with the homo resources and systems assets of that organization being used for the PNG business. It is besides potential that MVIL could be privatised, as the company is on a list of targets for public sale, though that list is being reviewed. increasingly, the market has been discussing a exchange in the way the fiscal sector is regulated. While the central savings bank presently supervises the banks, old-age pension funds and life insurers, the capital markets and general insurers are regulated individually, the erstwhile under the Securities Commission of the PNG and the latter under the OIC. International organisations have suggested that regulation be brought under one ceiling to improve credibility and operations .
One possibility is to form a completely new entity along the lines of a fiscal regulative commission. Another suggestion is to have the central bank take responsibility for the stallion fiscal sector. The Bank of PNG is well run and one of the most respect institutions in the country, so while there are some concerns about that level of consolidation, the idea does have considerable hold. “ There is a proposal that all regulated entities be under one mental hospital, and that would be the Bank of PNG, ” Repo told OBG. “ It may create some conflicts of interest to be regulated by the bank, but we want reform. It would be good. ”

Problems

The foreign currency crisis has besides created problems within the indemnity sector. much of the hazard covered domestically must be reinsured offshore, and the relevant policies are normally paid in US dollars, so the lack of dollars has made it unmanageable to pay premiums. Balfour told OBG that representatives from the sector have already gone to the central bank and argued that reinsurance premiums should be top priority. He added that if the policies were to lapse, insurance policies would have to be cancelled and banks would be unable to make many of their loans. This would very seriously and negatively affect the economy. Balfour told OBG the cardinal bank relented and placed reinsurance premiums near the top of its list for dollar allocations .
While the sector is generally in good health, some companies are struggling, many of which are small, not good capitalised and excessively aggressive in their pricing. The larger players say this “ deck ” is upsetting the market and making it unmanageable to write policies for some risks. Balfour told OBG, “ There is some concern about the fiscal standing of some companies. ” There is besides refer that should one of these companies flop, the fiscal system as a solid could take a reach .
The regulators confirm that some insurers are under tension and that they have had worry getting some companies even to file their required audit statements. This has created a degree of doubt in the sector due to the miss of transparency and dependable data. Without all audit statements, the OIC has not been able to issue its own annual report since 2011 and does not tied have inner numbers on gross written premiums after 2013. “ We have a 150 % solvency proportion, but some companies fall below that charge, ” Repo told OBG. “ We allow them to continue, but we monitor them. ”
According to Marsh, the marketplace is highly competitive, although possibly besides much so in some segments. In its “ Pacific Insurance Market Report 2016 ”, Marsh noted weaknesses across a phone number of lines. Most lines, including health, life sentence, accident, liability, directors and operators, and environmental, were rated stable, with premiums changing between -5 % and +5 %. Motor and property were up by adenine much as 10 % in some cases. however, marine cargo was down by adenine a lot as 15 %. continue rate reductions are expected into 2016 .

overall gamble

PNG was ranked as the ninth most risk-prone country in the 2015 World Risk Index by the UN University ’ s Institute for Environment and Human Security. Vanuatu is first, followed by Tonga and the Philippines. The nation is in the Ring of Fire, has active volcanoes and is subject to tropical storms. The risks are not vitamin a high as that absolute would suggest, however, as population densities are relatively low and earthquakes have not historically caused much damage, but the chance of catastrophic loss is always give .
The operate environment in the country rates ill. AM Best classifies PNG as Country Risk Tier ( CRT ) 5, the highest. In southeast Asia most countries are ranked CRT 3 or 4, with only Singapore being classified as CRT 1. In the region alone PNG and Micronesia are rated CRT 5. Outside of the immediate area, Pakistan and Uzbekistan are besides CRT 5. According to the means, political and economic risk are both high, while economic risk is very high gear .

growth

While it is difficult to assess the overall state of the sector, given the lack of reports from the OIC, some statistics offer a certain degree of visibility, and they appear to indicate shuffle results. According to the central bank, total assets for life indemnity companies have declined in late years, falling from PGK473.8m ( $ 161.7m ) in 2014 to around PGK416m ( $ 142m ) a year late. That is just slenderly higher than the grade hit in 2011 ( PGK415.8m, or $ 142m ). general indemnity has besides grown importantly in that same period, according to the Bank of PNG ’ s most late figures. total assets went from PGK963.3m ( $ 328.8m ) in 2014 to PGK1.01bn ( $ 344.8m ) in 2015, about double the floor in 2012 .
das kapital insurance has done particularly good, and it provides across-the-board disclosure and allows for meaning international examination of its books. While it may not be representative, the information available does show how promising the market can be for those well positioned. At Capital Insurance both life sentence and non-life revenues about doubled from 2014 to 2015, according to the firm ’ randomness 2015 annual composition. Group aesculapian and life rose from PGK17.2m ( $ 5.9m ) to PGK33m ( $ 11.3m ). Motor vehicle commercial coverage increased from PGK4.2m ( $ 1.4m ) to PGK13.8m ( $ 4.7m ). Workers ’ recompense went from PGK9.6m ( $ 3.3m ) to PGK11.8m ( $ 4.03m ). Marine declined from PGK2.4m ( $ 819,000 ) to PGK1.9m ( $ 649,000 ) .
The huge majority of revenues for the ship’s company came from PNG, though the tauten ’ s early Pacific operations are contributing. PNG generated PGK66.9m ( $ 22.8m ) of the company ’ s sum revenues, Fiji brought in PGK28m ( $ 9.6m ) and the Solomon Islands contributed PGK3.5m ( $ 1.2m ). Growth in the other markets has been peculiarly strong .
In late 2015 AM Best affirmed Capital Life Insurance ’ s rat of “ B- ”. The ratings agency said the insurance company has sufficient risk-based capital to cover its obligations and that its increase in 2015 has helped the company maintain prudent leverage. however, it added that the tauten ’ s addiction on a single broke creates risk, while the underdevelopment of its risk-management strategies could be a trouble given its rapid growth. The rating was positive and AM Best said the company could be upgraded if it continues to meet its obligations. AM Best reaffirmed its ratings in early 2016.

niche Markets

Another opportunity that those in the insurance sector are considering is coverage for small and medium-sized enterprises ( SMEs ). According to a May 2016 sketch by the UN ’ randomness Pacific Financial Inclusion Programme ( PFIP ), SMEs are estimated to account for at least 200,000 jobs in the nation and 10 % of GDP, with this figure not taking into account the informal sector. Currently, SMEs can only choose from more conventional products, such as property and liability exposure. Furthermore, given how vulnerable such businesses can be to losses, new offerings will have to focus on affordability. The PFIP review besides revealed that the 12 leading insurers in the region are planning to improve SME coverage, with two-thirds of respondents considering the sector an essential function of their portfolio in the next year .

expectation

Given the state of the nation overall and the fiscal condition of some players, performance may become choppy and inconsistent going forward. insurance will follow the economy and be adversely affected by the actions of some of the more aggressive players. however, the more stable firms will likely outperform, and the sector is probably to stabilise as fresh, stronger competitors enter the grocery store, such as BSP. New construction projects and the start of the Papua LNG project are likely to help business in the near to mid-term. The sector could ultimately be better served if the regulator is able to get financials out of some of the weaker insurers and push them to improve their solvency ratios .
Papua New Guinea's insurance sector has much to offer strong players

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