Page 151 - Risk Management in current scenario

may not be applicable such as deflation. However, there could be direct
or indirect impact on the India economic position due to global economic
events such as energy price shock that may result into increase in fuel
prices leading to inflation.

If asset bubble (unsustainably over priced assets) arises Reserve Bank of
India may have to prick the bubble through macro-prudential regulation
or through monetary policy, but this may have initial impact on the Indian
economy.

Unemployment and underemployment has not shown large volatility in
the Indian market, so its impact would be material only if large variation
is seen. Direct failure within country of financial mechanism or institution
may pose risk to the economy impacting equity market and interest rate
or may even have second order effect if the failure happens in the one
of developed market.

These global/local economic events may have an impact on the Indian
financial market including insurance industry affecting slide in equity
market, interest rate movement (both up and down) and increase in
inflation. The current thinking on the interest rate in India is that this will
in future decrease; this thought have been strengthen by the fact that
RBI has decreased interest rate by 75 bps over last six months.

However insurance companies should be vary of the situation that some
of the global events may push interest rate upward in future so they must
have action plan ready for this situation. Inflation could be the biggest
surprise in terms of unanticipated increase.

Societal:
One of the key risks identified under this category is rapid spread of
infectious disease leading to pandemic both at country level and at
international level. Last year witnessed emergence of Ebola virus; in the
past spread of HiNI virus have been seen. With the world now inter-
connected, the spread of such virus cannot be ruled out leading to large
number of morbidity and mortality claims.

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