Monthly Archives: April 2011

Muskesh Ambani is Now Opting for Insurance -Bharti Axa Can Be the Target

Posted on April 29, 2011 by
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Muskesh Amabhi’s Reliance group is in negotiation with Bharti-Axa Insurance to buy out Bharti part of it. This step shows the motive of Reliance group to foray into the financial market. The negotiation is in advance stage as Bharti is looking to make an exit from this sector.

Bharti Axa Life is struggling to sustain in the insurance industry with a market share of 1.1%. The firm, a joint venture in which Bharti owns 74% equity and the Paris-headquartered Axa group holds 26%, started operations in 2006. The company’s new business premium income has dropped 17% to Rs 364 crore in 2010-11.

Reliance group is looking to enter in financial market and they are trying to build it with the help of surplus generated by the petrochemicals business. They have already announced a tie-up with New York-based DE Shaw for financial joint-venture. As they think life insurance industry has the right opportunity of saving and risk which is more suitable to build up the sustainable financial empire.

When there was boom time in stock market, investors were more interested in ULIPs a market-linked product, insurance companies were competing with foreign portfolio investors in the local securities market and life insurance industry became the hot favorite financial tool for investors. In 2007, of the total premium income earned by insurance companies, 80% was ULIP investment; of this close to 70% went into stocks and this graph will continue in future as well.

Reliance’s entry into financial services is a development that is closely tracked by corporate and markets. It’s perceived that the group will build businesses like non-banking financial services, insurance and asset management where entry barriers are low compared to banking and anticipations are very high in insurance industry as it can be positive effect on whole business.

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Private Life Insurers Lose Market Share In FY11

Posted on April 28, 2011 by
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Private life Insurers registered a growth rate of 3% in new business premium income 2010-11. The major factor of this slow growth rate can be attributed to new regulations forced by IRDA. There are total 22 companies in private life insurance sector.

The major player LIC has shown little bit of mercy and it is going as strong as it was in previous financial year. Its composite premium income growing by 22% to Rs.86,445 crore in 2010-11 has gained market share of almost 4% to 68.7% in terms of premium and 7% to 77% in garnering policies in the year. Industry growth has been registered as increase of 15% in new premium income to Rs.125, 826 crore in 2010-11. The total premium for the entire private sector life insurance industry is pegged at Rs.39,381 crore in 2010-11.

Some of the private sector life insurance companies have recorded a negative growth in 2010-11. Bajaj Allianz Life Insurance has seen a negative growth of 22% with new business premium income of Rs. 3,462 crore during 2010-11.Other well known private firms which joined Bajaj Allianz are Reliance Life (23%, Rs.3,035 crore), Birla Sun Life (30%, Rs.2,077 crore).

ICICI Prudential Life Insurance retained its number one position among private life insurers by recording a growth of 24% in total premium (Rs.7,861 crore) though losing the market share of over 3% during the year.

SBI Life which has recorded a total premium of Rs.7,571 crore during the year and It reported a 33% growth in net profit at Rs.366 crore for 2010-11 but it has also lost its market share by 89 basis points. Company is targeting a growth of 35% in 2011-12. The persistent ratio of SBI Life rose to 69 % in FY11, from 58% last year.

HDFC Life which has grown by 25% to Rs.4,065 crore during the year has lost its market share by around 2%.

Star Union Dai-ichi Life Insurance has registered a total premium income of Rs.759 crore and gained a market share by 57 bps, while Canara HSBC OBC Life Insurance saw its premium income rise by Rs.823 crore and gained a market share of 42 basis points.

India First Life Insurance recorded a premium income of Rs.705 crore in the reporting period and has gained market share of over 1%.

The drop in market share of private insurers is big cheering news for LIC.

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Planning For Financial Planning – Life Insurance Should Be Your First Step

Posted on April 28, 2011 by
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As we are in wake of nuclear family and inflation is exploding our financial life, life insurance has become a vital financial weapon in this situation. It is paramount for every individual to first adequately insure his life for the financial security of his/her dependants and then proceed to address other aspects of financial planning.

Financial goals and long-term objectives are the major goals of any financial planning. Financial planning is a dynamic process that involves charting an individual’s financial goals and long-term objectives in conjunction with ways and means of achieving those long-term goals and objectives.

Life’s different stages need different type of financial needs so that is insurance plan should have been synced with those stages of life. Life stages change from marriage to purchase of a house, to child’s education and an appropriate financial plan evolves to meet these objectives within the given timeline.

Financial planning has different array of spectrum according to an individual’s need. But these days’ people tend to focus on the ‘wealth creation’ aspect of financial planning and the ‘protection’ element often gets compromised or neglected. No financial support can replace the family’s breadwinner, but being adequately insured guarantees that the dependents are provided with the much-needed funds to be financially independent and largely keeps the family’s financial plans on track without having to compromise on their standard of living. And that is why life insurance is so essential to financial planning. This aspect of protection is unique to life insurance and hence it should be a key ingredient in an individual’s financial plan.

The Life insurance is a protection-cum-savings tool and its basic feature of need-based financial support on each and every stage of life makes it’s a must have feature in financial plan. It gives the peace of mind to the individual and also provides a new edge of risk taking ability to enhance her/his financial growth.

The assessment of life insurance should be based on scientific proofs like current liabilities, expectation of future liabilities, number of dependents, financial goals, life style according to her/his life stages.

Life insurance is also changing with our financial surroundings and now we have lots of plans which not only provide protection facility but also it gives flexibility of being used as a long term savings and wealth creation tool. One can achieve different life milestones like child’s education, marriage or retirement while creating wealth using these kinds of life insurance products.

But overall view of life insurance is return-cum-protection which is a very wrong perception as compare to other way around which is the most basic feature of this financial plan. So we can’t compare life insurance with other financial plans with better returns. And in the unfortunate event of the demise of the family breadwinner, only life insurance will provide succor to the family of the policyholder.

Calculation of life insurance can be a complex exercise but we have some standard thumb rules also the simplest one is insurance should be 20 times of annual income of the individual and important part to consider in this assumption is that life insurance is not meant only to cover the expenses of daily living of the family in the absence of the breadwinner but It should be sufficient to bail out the family when they face large financial exigencies and that is why life insurance is the central pole of financial planning.

A financial plan is very important and life insurance is integral part of that financial plan and life insurance should be based on considering all factors of different life stages of a person and it should be protective first than it can be used as savings and wealth creation tool.

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Despite Hike in Premium Insurers to Incur Losses

Posted on April 26, 2011 by
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Insurers may still continue to incur losses despite the hike in premium. The latest rate hike of 10% in third-party motor insurance premiums for private cars as well as two-wheelers and 68.5% hike for commercial vehicles by Insurance Regulatory Development Authority (IRDA) are expected to improve the underwriting performance of the general insurance industry in the current financial year but it will not be sufficient to cure the losses of insurers.

The rate hike might improve the general insurance industry’s combined ratio to around 110% in 2011-12 from an estimated 132% in 2010-11. A combined ratio of more than 100% indicates underwriting losses for the insurer, according to a recent study by Crisil Ratings.

The formula introduced by IRDA for yearly revision of motor insurance premium rates will automatically take inflation and data on claim settlement into consideration. This will be helpful for the insurers since till now the third party tariffs were revised after a gap of few years and used to put a lot of pressure on their capital. Earlier, as per IRDA, the claim ratio for 2007-2010 periods was around 125-130% of the premium, which was then raised to an estimated 153% for all the four years on provisional basis.

The general insurance industry’s overall underwriting performance will be improved because of risk-based pricing across key segments, effective claims management, and lower operating expenses. After de-regularization of tariffs in non-life sector in 2007, IRDA continued to regulate the third-party motor insurance tariff. But Commercial vehicle third party insurance will continue to be a loss-making portfolio despite the hike in premiums due to unlimited liability and numerous instances of inflated and fraudulent claims. General insurance industry has to take the appropriate steps to improve fraud control measures to improve underwriting performance for commercial vehicle third party insurance.

IRDA has instructed the insurers last month, not to disburse bonuses or performance incentives to any key management personnel such as whole time board directors or chief executives and even actuaries, without the prior approval of the authority.

Crisil believe that the rate hike is inadequate to cover the substantial losses incurred in this segment. It also estimate the industry’s underwriting losses to increase significantly to more than Rs 10,000 crore in 2010-11 from Rs 5,900 crore in 2009-10. This increase reflects weak underwriting performance, increase in reserving requirements for each of the past four years on the third party motor insurance pool, and wage revisions in public-sector insurance companies.

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IRDA is Changing Rules for Pension Plans

Posted on April 25, 2011 by
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IRDA is about to change the pension plan which consists 30% of the life insurance industry’s business. This move may help the industry recoup business volumes that have dropped sharply after the regulator imposed stringent guidelines late last year.

IRDA in June altered norms that govern unit-linked insurance plans (ULIPs) – a hybrid insurance product that invests part of the premium in equities. The changes, which came into effect from September, included the so-called linked pension schemes that invest in equities and bonds, but there was no stipulation on the quantum of such investments. In contrast, traditional plans invest at least 50% in government bonds, 15% in infrastructure instruments and the rest in equity, bonds and other assorted money market instruments. IRDA had made it mandatory for insurers to offer a 4.5% guaranteed return on all linked pension and annuity schemes.

The Life Insurance Council, a representative body of Indian life insurers, proposed some changes to the regulator for pension schemes. IRDA is likely to accept most of the proposed changes.

Under the revised guidelines, the 4.5% guaranteed return portion in a pension scheme may no longer be mandatory. Policyholders are likely to be given options to choose from a range of pension products linked to equity without a guaranteed return, but holding prospects of better return in the long run. There would be yet another option where the insurers may be allowed to offer products with a guaranteed return of 4.5%, but with many riders, including health cover.

IRDA’s stringent norms kept many firms from launching new pension products under the new guidelines. Of the 23 life insurance companies, only four-Life Insurance Corp. of India, ICICI Prudential Life Insurance Co. Ltd, SBI Life Insurance Co. Ltd and Aegon Religare Life Insurance Co. Ltd-have launched new plans. These 23 life insurers have assets under management of about Rs14 trillion. During the first 11 months of fiscal year 2011, the new business premium of private insurers grew just 4% to Rs30,756.02 crore over the April-February period of the previous year.

The private insurers experienced negative growth of about 34% over the period September 2010 to February 2011 compared to the same period in the previous financial year.

To help policyholders protect lifetime savings from adverse market fluctuations, it mandated insurers to offer a minimum guaranteed return on unit-linked pension plans. It disallowed partial withdrawals in such pensions and annuity products during the premium-paying period. The insurers were asked to convert the accumulated fund value into an annuity at the chosen retirement date.

Under the new guidelines, policyholders are allowed to withdraw up to a maximum of one-third of the accumulated value as a lump sum at the time of vesting. In case a policy is surrendered, the money is locked up to the vesting period and no withdrawals can be made. Insurers expect IRDA to relax these norms.

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Accounting Norms Have Been Relaxed By IRDA

Posted on April 24, 2011 by
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IRDA has relaxed accounting norms for insurance companies to take care of higher liability arising out of enhanced outgo towards gratuity for their employees. The regulator allowed the insurance and reinsurance companies to pay off the additional liability on account of gratuity over a period of five years starting from financial year 2010-11 in regular interval.

Gratuity limit for all employees has been increased to Rs 10 lakh from Rs 3.5 lakh by government last year and also revised payment structure of employees of Public sector entities. The insurance regulator said these moves would lead to the increase in liability on account of gratuity which would in turn affect insurers’ profitability.

IRDA said this move will impact the insurers’ profitability significantly as they need to provide the same in the financial year 2010-11. This will cause a strain on their solvency as well as on their performance results.

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For Max New York Life another Year of Even-Break

Posted on April 24, 2011 by
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Max New York Life Insurance is expecting another year of even-break. Max New York Life (MNYL) has said that it does not see the need to infuse any further capital in the year to support its growing business. Max India has a paid-up capital of around Rs 2,000 crore (as of August 2010).

Ms Anisha Motwani, Director and Chief Marketing Officer, MNYL said,” We have already reported profits in the third quarter of the previous fiscal and were one of the few insurers to post a growth in sales despite the announcement of the tighter norms on the sale of Unit-Linked Insurance Plans. We should break-even this year and do not expect to add any more capital this fiscal as our reserves are adequate.”

MNYL is also planning extensive marketing activities this year to improve its brand image. This includes a continuation of the ‘igenius’ scholarships for talented children into the second year, besides a recently announced sponsorship deal with IPL team Pune Warriors.

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Insurance Bill Will Work As a Capital Infusion Booster for Insurers

Posted on April 19, 2011 by
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The Insurance Bill, which is pending in the Parliament, seeks to make it easier for insurance companies in the future to go ahead with their plans on capital infusion through hybrid instruments. This bill will give enough power to IRDA and regulator will able to take decision independently. The government is mulling the option of allowing insurance companies to raise ‘tier II’ capital using sub-ordinate debt instruments and other products similar to ones used by banks.

Insurers are demanding for more ways to get capital as according to them Insurance industry is capital intensive and there is need to make it easier for the companies to tap various sources of capital. At present, insurance companies largely depend on equity infusion by promoter companies to strengthen their capital base. The government is yet to finalize norms for the initial public offer (IPO) for insurance companies. This has limited their fund-raising options as raising capital by listing on bourses, unlike banks, are not yet allowed. This bill will raise the foreign direct investment from 26% to 49%.

Insurance companies have to maintain a minimum capital base of Rs100 crore. Several foreign insurers such as South Korean major Samsung Life Insurance, French firm SCOR Global Life and Japanese major Mitsui Sumitomo Insurance Group and Canada based Manulife have shown interest in tapping the market.

IRDA in its guidelines for Unit Linked Insurance Policies (ULIPs) —hybrid life insurance products — has capped surrender charges of policies while slashing agent commissions. The move would prevent miss-selling and ensure that charges are more transparent but will reduce profitability of companies.

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PFRDA (Pension Regulator) stakes claim to cover company’s schemes

Posted on April 18, 2011 by
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The Pension regulator has staked its claim on pension plans of insurers, and this proposal will become a new turf war surface between IRDA and PFRDA. IRDA which had won a tussle over supervision of unit-linked plans with the stock market watchdog is again in trouble. This matter has been referred to the Financial Stability and Development Council, the regulatory dispute settlement body.

Insurance regulator IRDA oversees over 1.4 lakh crore in pension schemes, which is the fastest growing category for life insurers after unit-linked investment plans (Ulips) and now PFRDA is looking for these pension schemes after PFRDA Bill, which was introduced in the Lok Sabha, is passed.

According to Yogesh Agarwal, chairman of the interim PFRDA, said monitoring all retirement and pension savings products is their mandate and they would not support other regulators. He questioned – How their mandate impinges on other regulators have been referred to the Financial Stability and Development Council (FSDC)? The FSDC, led by Finance Minister Pranab Mukherjee, is an institutional mechanism set up recently to settle inter-regulatory disputes. The turf overlaps in the pension sector are compounded by the impending Direct Taxes Code (DTC), which gives PFRDA the power to approve savings intermediaries eligible for tax sops and prescribe an investment pattern for pension funds.

Yogesh Agarwal said The DTC clearly said that only the products approved by us would get tax-free status. SEBI may not have much problem yielding to the PFRDA, as only two mutual funds – UTI and Franklin Templeton – have retirement savings products. But IRDA, which won the Ulips battle with SEBI, is reluctant because pensions contribute a large kitty to insurers’ coffers.

IRDA has other argument about this situation, life insurers have launched pension schemes because the Insurance Act cleared by Parliament allows it and no company can report to two regulators. IRDA has also pointed out that the pension regulator was created to oversee the New Pension Scheme (NPS) only. NPS, initially started for government employees, has been opened to all citizens since 2009. By February, the PFRDA-run schemes had about 13 lakh investors.

Another argument given by IRDA is that PFRDA’s pension scheme only takes care of the accumulation phase but at retirement, workers need to buy an annuity from life insurers to get a monthly pension. The pension regulator doesn’t have the systemic capability to monitor this aspect.

The FSDC would have to take a call on how to fix the criss-crossed regulatory plumbing in India’s pension funds space, which is expected to grow rapidly in tune with the country’s demographic dividend. Mukherjee hopes to get the long pending law for a pension sector regulator cleared in the monsoon session of parliament with the backing of the principal Opposition party, the BJP. The PFRDA was conceived under the BJP-led NDA government in 2003, after the IRDA’s contention that pension and insurance products were similar, was overruled.

According to industry experts this is not a simple problem and regulators need to work together, rather than at cross-purposes. The IRDA doesn’t have the capacity to exercise fiduciary responsibility for investments, with its knowledge of bond and stock market activity, SEBI could oversee pension investments, while the PFRDA could regulate the structure and tax aspect of pension products.

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IRDA increases premium rates for third-party motor insurance

Posted on April 16, 2011 by
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Source: Business Standard

The Insurance Regulatory and Development Authority (IRDA) raised the premium rates for third-party motor insurance policies by 10-65% across different categories of vehicles and ownerships effective from 25th April 2011.

While third-party premiums for personal cars and two-wheelers were raised by 10%, new premiums for commercial vehicles would be higher by 65%.

Third-party motor premiums for commercial vehicles rose for the first time in four years. Third-party motor premiums in India are regulated by Tariff Advisory Committee, a constitutional body under IRDA.

Irda also specified third-party motor premiums would be revised annually, based on inflation and claim experience. Third-party premium rates for commercial vehicles were stagnant for the last four years, owing to opposition from transport unions. This resulted in an accumulated loss of Rs 3,500-5,000 crore for general insurance companies and adversely impacted their solvency margins.

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