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Monthly Archives: March 2012

ONGC Offshore Policy’s Premium Increased Just by 2%

Posted on March 30, 2012 by

Despite increase of $3 billion in its offshore assets and increase in the cover, premium of Oil and Natural Gas Corporation’s (ONGC) offshore package insurance policy has risen marginally by 2% at $25.8 million for assets worth $36.7 billion.

Last year ONGC had paid premium of $25.25 million for covering assets worth $33.7 billion.

State-owned General Insurance Corporation of India (GIC) has emerged as the lead reinsurer and it will be holding 15% of the risk. United India has emerged as the lead insurer and it will be sharing 7% of the risk with remaining three co-insurers – New India Assurance, Oriental Insurance and National Insurance.

Policy for 2012-13 will be renewed on 11 May 2012 by United India Insurance that has remained the lead insurer for several years.

As per United India Insurance, international oil and energy insurance market is a specified market and has not seen any losses and therefore market capacity has increased. It further said, premium is based on the reinsurer’s quote and it is in line with international market condition and it is reasonable and it is confident of placing it in the market.

The second lowest (L2) and third lowest (L3) bids submitted by foreign reinsurers were $33 million and $50 million.

ONGC offshore insurance package policy is the country’s largest insurance policy covering all offshore assets including all offshore oil-and-gas platforms, pipelines, rigs and vessels. The policy covers risks such as sinking, air-strike, damages due to accidental perils, terrorism, all kinds of man-made disasters and natural calamities such as earthquake, thunder, and storm.

New policy will also allow ONGC to get higher claim amount of $150 million in case of blow out compared to $100 million as blow-out expenses in current policy. ONGC insurance policy has a loss limit cover of $750 million. The limit has remained same for many years; this means for every single property, reinsurers would not pay a claim of more than $750 million even though the property at risk would be high.

According to the insurers, considering the increase in assets of ONGC by $3 billion and additional $50 million in case of blow out, it seems as the reduction in premium.

And it still remains to be seen whether reinsurance market has softened or will react to losses suffered worldwide or not, and it will only be known if ONGC risk is successfully placed abroad.

Categories: News | Tags: General Insurance corporation of India, Insurance Premium, National Insurance, New India Assurance, Oil and Natural Gas Corporation, ONGC, Oriental Insurance, United India Insurance

Now EPFO Subscribers Can Get Annual Account Slip & Detailed Account Statement Online

Posted on March 30, 2012 by pappu kumar

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Within two months Employee’s Provident Fund Organization (EPFO) will start providing annual account slips and detailed account statements online under its Electronic Challan cum Return (ECR) service. It will make transactions with EPFO much simpler and transparent. This service will be available across the country.

Under the ECR service, employer has to register their organization online and generate challan for making monthly deposits. Then they can use challan for depositing the PF contribution either physically or electronically to the bank. As soon as the bank confirms the deposit, the concern regional system will be automatically notified and individual member’s account would get updated.

Until now EPFO resorted to manual book keeping which resulted in long delay and updating of accounts and generation of account slips.

At present, EPFO covers over 5.7 lakh establishments with over 5 crore subscribers. And it manages the corpus of Rs 4 lakh crore.

With the new service employers will be able to generate annual account slip for their employees for the year 2010-11. From May 2012 employees who are member of EPFO will also be able to download detailed account statements with all credits and debits.

This service will also allow automatic updating of member’s accounts every month. It will also automatically update basic details of new as well as existing members.

Last year EPFO has launched SMS alerts and online services to check balance and claim status.

Categories: News | Tags: ECR, Electronic Challan cum Return, Employees’ Provident Fund Organization, EPFO

ICICI Prudential Directed to Pay Compensation for Ignoring Natural Justice

Posted on March 30, 2012 by

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The district consumer disputes redressal forum has directed ICICI Prudencial Life to pay Rs 7.15 lakh to Delhi resident Ashok Kureel for ignoring the principal of natural justice. As it was the duty of the company to inform Ashok Kureel that his cheque for the second year’s premium has been dishonored. But company failed to do so and it did not give him opportunity to renew his lifelong pension scheme.

Forum directed ICICI Prudencial life to return the first premium of the policy of Rs 7 lakh along with Rs 10,000 as compensation for causing harassment to the policyholder and Rs 5,000 as litigation cost.

Ashok Kureel in his plea has alleged that company not only failed to inform him about the dishonor of the cheque but also converted his lifelong pension scheme into a paid up plan on the ground that he defaulted in the payment of second year’s premium.

He also said that after receiving the second year cheque in November 2008, the company issued him the renewal receipt and consolidated premium certificate in January 2009 for the period 2008-09.

In its defense company said, that it duly informed Ashok Kureel to renew his policy despite which he failed to do so and his premium was not paid by the due date. Hence, life cover and rider benefit, if any, available to Kureel was ceased as per the terms and conditions of the scheme.

However, forum observed that cheque was received by the company in November 2008 and till February 2009 it remained silent and did not inform the complainant. Hence, its conduct was not in accordance with natural justice.

Categories: News | Tags: District Consumer Disputes Redressal, ICICI Prudential Life

Impact of Budget on Life Insurance Products

Posted on March 29, 2012 by

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Announcements in the Union budget of 2012 regarding changes in the premium-to-sum assured ratio and increase in the service tax net will force life insurers to re-file their products.

As tax benefit is the main stimulant to buy traditional insurance products hence, now life insurers will have to rejig their products to make them viable for their customers. But these revised plans will take some time to come in the market as Insurance Regulatory and Development Authority (IRDA) takes at least 30-60 days to approve a new product.

Premium-to-sum assured ratio: Budget has proposed to increase the premium-to-sum assured ratio to 10 from 5 to avail the tax benefit under section 80C of income tax act. Currently tax benefit is available on the policies where premium does not exceed 20% of sum assured or the cover does not exceed five times the premium paid. These proposals will come in effect from first April 2012.

Now to avail the tax benefit under section 80C policyholders will have to go for those cover which is at least ten times the annual premium paid or where premium does not exceed 10% of the sum assured. For instance premium for the cover of Rs 1 lakh should not be more than Rs 10,000.

Hike in MAT: Budget has proposed to raise the Minimum Alternative Tax (MAT) on life insurance companies from current 12.5% to 18.5% which will also impact premiums. This will not directly impact the policyholder but it will impact the profitability of the promoters of life insurance companies. Hence, while pricing new product life insurers will factor in this hiked MAT.

The entire MAT concept does not apply on the insurance companies as they follow different method of accounting. However, industry has taken up the matter to the finance ministry to scrap the MAT model.

Increase in service tax: Budget has also proposed to increase the service tax net from 10% to 12%. This will increase the premiums of policyholders as insurers will pass on this hike to the policyholders. Premiums on all kinds of insurance policies will increase as hike of 2.06% in service tax will increase the risk charge in equal percentage and which will lead to reduction of benefits in same proportion.

Premium rates for saving-linked life insurance products for both traditional and Unit-linked will be increased but to lesser extent as it is difficult to segregate the part of the premium that goes to cover the risk of the life and part that goes to the savings fund.

Since 2004 insurance companies are required to pay service tax on the risk premium. Insurers are allowed to pay service tax of 1% on gross premium since 2004. This was increased to 1.5% last year. And this year budget has proposed to increase it to 3% for the first year premium collection and 1.5% thereafter.

Categories: News | Tags: Income Tax Act 1961, Insurance Regulatory and Development Authority, IRDA, MAT, Minimum Alternative Tax, Premium, Service Tax, Sum Assured, Tax Benefits

Planning Commission Recommended to Roll-out Universal Health Coverage

Posted on March 29, 2012 by

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Planning commission has said that one of its expert groups has suggested rolling-out of cashless health and portable Universal Health Coverage (UHC) across the country by 2017.

Planning commission has also suggested to roll-out the scheme on a pilot basis in one district of each state in the first year of 12th five year plan (2012). And gradually it should be rolled-out to other places as well. State governments should be supported by central government to reach out to the entire population by the end of twelfth year plan.

Panel has also recommended that cashless programme should be borne by central and state governments on an 85:15 basis. Central assistance should be made available to state through additional central assistance on the lines of Rashtriya Krishi Vikas Yojana after signing the memorandum of understanding.

For states, to avail the additional central assistance for UHC, each state should ensure that the share of medical and public health in its plan and non-plan budget is at least maintained at the average of the last three years.

Categories: News | Tags: Cashless Medical Facilities, Health Scheme, Rashtriya Krishi Vikas Yojana, UHC, Universal Health Coverage

Balangir Farmers Threatened to Paralyse Insurance Offices

Posted on March 29, 2012 by pappu kumar

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Farmers of Balangir district in Orisa has said that they will paralyse insurance companies operating in their district if government will not pay adequate compensation to them.

Farmers of the district have paid Rs 10 crore through different banks as insurance premium but still they have not been paid any compensation.

Government has announced the assistance of Rs 1,200 per acre but according to farmers this is very low and they are demanding that they should be given Rs 20,000 per acre.

Farmers are also demanding that all farmers of the district should be brought under one umbrella. And gap between weather-based insurance schemes operating in eight blocks and other crop insurance schemes should be bridged by bringing all farmers under one scheme.

Farmers are also demanding as this year their crop has been lost due to drought hence, effected farmers should be given free seeds for next year and fertilizers at minimum cost.

Categories: News | Tags: Crop Insurance, Weather Based Insurance

Lloyd’s Witnessed Second Biggest Loss on Account of Natural Calamities

Posted on March 29, 2012 by

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The Lloyd’s of London insurance markets had to bare its second biggest loss on account of claims arising out of last year’s natural catastrophes including earthquake of Japan and floods in Thailand. For 2011 Lloyd’s reported a loss of £516 million or$824 million as against the profit of £2.2 billion in 2010. This loss is the second just to the £3.11 billion deficit of 2001 following the September 2001 attacks.

This loss is the aggregate financial performance of 80 competing insurance syndicates that make up for Lloyd’s market.

For 2011 Lloyd’s incurred claims of £4.6 billion on account of natural disasters which is a record. Total payouts for 2011 for Lloyd are stood at £12.9 billion.

Last year was the second costliest year for insurance industry for catastrophes. Last year’s earthquakes, floods and tornadoes generated total claims of $116 billion. It was surpassed only by insured loss of $123 billion in 2005, when hurricane Katrina devastated New Orleans.

During last year total returns on its portfolio has also fallen 24% to £955 million due to low interest rates and strong demand of high-quality government bonds.

However, Lloyd’s is disappointed that insurance prices which have been declining or stagnated since 2008, even after last year’s catastrophe has also not risen significantly.

Typically, insurance price rise, in the wake of large payouts by the industry as financially week players retrench, which ease the competitive pressures on remaining players and they become free to charge more.

But this year significant increase has been only confined to the directly catastrophe-related lines of businesses. And there has been only moderate increase in the broader market.

Lloyd’s also said in an environment where investment returns are at record low insurance industry is still an attractive place to park capital.

Categories: News, World Insurance | Tags: Catastrophic Loss, Hurricane Katrina Losses, Insurance Industry, Insurance Syndicates, Japan Earthquake Losses, Lloyd's of London, Thailand Flood

Insurance Industry Proved Highly Effective in Dealing with Catastrophic Losses: Swiss Re

Posted on March 29, 2012 by pappu kumar

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According to the report by Swiss Re, insurance industry proved highly effective in dealing with the last year’s record insured loss of $116 billion stemming from the catastrophes and man-made disasters.

As per Swiss Re’s sigma report on natural catastrophes and man-made disasters, last March’s earthquake of Japan resulted in $35 billion in insured losses, which made it the most expensive earthquake on record. Earthquake that destroyed portions of Christchurch in New Zealand in February 2011 was the third most expensive earthquake, which resulted in insured losses of about $12 billion. And floods in Thailand caused in estimated $12 billion in insured losses.

Despite record losses and challenging financial environment of 2011 insurance industry played an important role in post-disaster recovery financing, bringing much needed funds to effected population, business and governments.

However, report also warned of increasing risk accumulation particularly in emerging markets.

Categories: News, World Insurance | Tags: Catastrophe, Japan Earthquake Losses, Swiss Re, Thailand Flood

LIC Allowed to Pick More Than 10% Stake in a Listed Company

Posted on March 28, 2012 by pappu kumar

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Insurance Regulatory and Development Authority (IRDA) has allowed country’s largest insurer Life Insurance Corporation of India (LIC) to exceed the limit of 10% stake in a listed firm. This move from IRDA automatically approves government’s use of LIC as an investor of last resort.

In last few months government has used LIC to recapitalize PSU banks and to bail out the share sale of Oil and Natural Gas Corporation (ONGC).

At present life insurance companies are allowed to pick up maximum of 10% stake in a listed firm. However, in an infrastructure company their holding in form of equity and debt cannot exceed 20%.

Six committees are working to suggest the changes in investment norms for the life insurers. However, revisions will be subject to approval of proposed insurance bill. As per IRDA, if LIC will be given a relaxation in investment norms by allowing it to hold more than 10% stake in a listed company then it will be given to other insurance companies as well.

This relaxation in the investments norms for LIC will give a boost to the equity market and it will also help government to achieve its disinvestment target. For FY’13 government has set a target to raise Rs 30,000 crore through divestment in the public sector companies in 2012-13. In current fiscal government has been able to raise only Rs 14,000 crore against the target of Rs 40,000 crore through divestment.

In last few months LIC has picked up 5% stake in more than dozen of PSU banks through preferential allotment. LIC has bought 5% stake in Punjab National Bank (PNB), Central Bank of India and Indian Overseas Bank for around Rs 3,700 crore. After subscribing to these preferential allotments, LIC’s stake in most of these banks will exceed 10% cap.

Government sold its 5% stake in ONGC through auction and of which LIC picked up 4.4% stake. Government was also criticized for forcing LIC to rescue ONGC sale. However, government maintained that it was commercial decision of the LIC.

In reply of which LIC said that, LIC itself is owned by government and its money is government’s own money. Its fund is guarded by sovereign guarantee hence; it is up to government how it utilizes its money.

Investments by LIC has always been a contentious issue as it has been holding more than 10% stake in at least 41 listed companies. However, these investments have been accumulated over the time of several years. LIC increased its stake in seven firms between December 2010 and December 2011. Earlier IRDA allowed LIC to pick up more than 10% stake on case-to-case basis.

On the back of record inflows by Foreign Institutional Investors (FIIs) in the first quarter of current calendar year equity markets are trading 12% higher after falling 24.6% in last year. But several legal experts are expecting that this trend will reverse due to tax implication on foreign investments of the General Anti-Avoidance Rule (GAAR).

Historically whenever, FIIs has pulled out from Indian stock markets than LIC has acted as the cushion to absorb their selling to help in stabilize the markets.

In current fiscal LIC investments in equities has been estimated at around Rs 40,000 crore. It has assets worth at least Rs 12 trillion. In current fiscal it has invested Rs 1 trillion across securities.

In another move government has allowed LIC to pick as much as stake it is required to recapitalize PSU banks to comply with new international capital norms.

Categories: News | Tags: FIIs, Foreign Institutional Investors, GAAR, General Anti-Avoidance Rule, Insurance Regulatory and Development Authority, IRDA, LIC, Life Insurance Corporation of India, Oil and Natural Gas Corporation, ONGC, PSU Banks

India Inc might had to Shell Out More Premiums to Renew their Insurance Policies

Posted on March 28, 2012 by

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From April 2012 India Inc might have to shell out more to renew their insurance policies as global reinsurance rates are set to rise by 20-25%. Global reinsurers such as Swiss Re and Munich Re who has faced record catastrophe losses in 2011 are demanding more for insurance covers in loss-effected areas.

Buyers of global catastrophe programmes and business interruption covers are faced with lower limits, higher prices and request for more information, following tough reinsurance renewals in January.

Reinsurers are insisting on a cap on single limit covers of a say Rs 25 crore for single incident. Unlimited covers are not available due to high loss ratios.

Reinsurers are also asking insurers to provide more disclosures in terms of profitability, capacity and loss ratios of portfolios.

In western countries Reinsurance programmes begins from First January while in Asia-pacific it begins from first April.

For Indian corporates it has already started to show its impact as premium for country’s biggest insurance policy which is held by Oil and Natural Gas Corporation (ONGC) is likely to be increased by 15-20%. Last year ONGC had paid $25-27 million for covering assets worth $32.6 billion.

General Insurance Corporation of India (GIC), the designated domestic reinsurer has taken a hit of Rs 1,800 crore on its networth due to unprecedented claims arising from these global catastrophes.

Last year in particular was the worst year for the insurers due to major catastrophes across the world such as tsunami and earthquake in Japan and floods in Australia and Thailand.

Economic losses on account of global catastrophes are pegged at $370 billion. In 2011 insurers took a hit of $116 billion against $45 billion in 2010.

Typically, under reinsurance treaties, reinsurance support is around 70% of the risk for the cover below Rs 1,000 crore and for larger covers 90% of the risk is reinsured with global reinsurers.

Categories: News | Tags: Catastrophe, Loss Ratio, Munich Re, Reinsurance, Swiss Re

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