Page 148 - Risk Management in current scenario

The WEF's Global risk report has identified Inter-state conflict, state
collapse, failure of national government, terrorist attack and weapon of
mass destruction as key risks in decreasing order of concern over next 18
months.
From India's point of view, the interstate conflict is not just directly related
to its neighbors but also have cascading effect if conflict occurs in other
parts of the world. Similarly, weapon of mass destruction could have far
reaching socio-demographic economic impact over the longer term.
Terrorist attack may also change political dynamics of the world. If these
extreme events occur may have following economic/political impacts in
the Indian market:
X Decrease in exports impacting GDP
X Crash of equity market
X Increase in inflation

X Impact on interest rate
X Polarization of world political landscape impacting entire economy and
development of the country

The direct and indirect impact on life insurance industry from above
events could be:
X Reduction in New Business Premium
X Higher/Mass surrenders
X Lower capital generation affecting expansion
X Interest rate risk leading to mismatch between assets and liability
X Very high claims if weapon of mass destruction is used
X Liquiditydryingup
X Defaults in corporate Bonds due to unable to manage sustainable
growth
X Reinsurance default due to impact in the global market/ parent
country.

These impacts on the insurance industry may be classified into following

146 | Risk Management in Current Scenario