Bajaj Allianz reshuffles top management

MUMBAI: There has been a churn at the top management of Bajaj Allianz. Allianz country manager and Bajaj Allianz Life Insurance CEO Sam Ghosh is moving to Allianz’s operations in the Middle East. Kamesh Goyal, who is currently the CEO of Bajaj Allianz General Insurance Company, is stepping into the shoes of Mr Ghosh. Mr Goyal’s post will be now filled by Sawraj Krishnan, who is currently the general manager in the company. Mr Ghosh’s move is the third in line in the insurance sector. Dalip Verma of Tata AIG moved to the Middle East. He was followed by Anthony Jacob, who is also moving to the region to take up regional operations at Royal SunAlliance. Mr Ghosh will take over regional responsibilities in the Middle East. Mr Ghosh was the third CEO of the life insurance company. He was earlier working for Australian insurance company MMI which was acquired by Allianz. He was the representative of Allianz in India and was earlier the head of non-life company before he was shifted to the life insurance company. When he took over the company, it was languishing at number seven in industry rankings. Within two years, it became number two among private companies. He has been very aggressive in scaling up the company and has been focusing on volumes- growing premium income and distribution network. Mr Goyal was earlier the head of insurance practice with KPMG, when the sector was opened up. The market share of the company has gone up from 2.8% to 7.2% ever since he took charge in January 2004. He will now be Allianz’s representative in India. The general insurance company has made a profit before taxes of Rs 117 crore and a profit after tax of Rs 75 crore. In the first quarter of the current financial year, it garnered a premium income of Rs 574 crore and net profit of Rs 21 crore. The move has to be cleared by the boards of both companies and the regulator. Both insurance companies together would have an employee strength of over 30,000 while total revenues would be above Rs 10,000 crore. The shuffle is coming at a time, when Bajaj Auto is set to demerge the financial services company and list it separately. The German major is also on an aggressive rollout mode in the country. It is in the process of kicking off its mutual fund activities. The mutual fund will also be the responsibility of Mr Goyal. It is also looking at kicking off banking operations in India through Dresdner. Allianz had taken over Dresdner, internationally. Desdner earlier had operations in the country which it had closed earlier in the decade. Allianz has now applied for a banking licence to RBI. However, the German major is planning to use the Allianz brand for the bank.

Source: www.economictimes.com 16 Aug, 2007, 0449 hrs IST, Times News Network

Bajaj Allianz is worst hit by IRDA ruling on Ulips

DNA Money

Bajaj Allianz is likely to be hit the most by the Insurance Regulatory and Development Authority (IRDA) ban on certain category of unit-linked insurance policies (Ulips).

The "capital unit-linked" products, which were banned by IRDA on Thursday, account for 40 per cent of the company's premium income.

Bajaj Allianz CEO Sam Ghosh confirmed this to DNA Money.

"True, a large amount of premium comes from this category, but not everyone is financially astute. We will devise new products. The same happened with our single premium plans, which once constituted about 45 per cent of our premium, but now they account for just 7-8 per cent," he said.

The banned products, which the IRDA terms "customer unfriendly", are hot- selling cakes for insurers.

Ulips constitute the bulk of premium for almost all private life insurance companies as well as the Life Insurance Corporation, which has seen a rise in its premium, largely on account of Ulips.

While asking companies to withdraw the products, the insurance regulator said that even though the policies may be technically sound, they're quite complicated for the insured.

Said Ghosh: "IRDA has indicated that this is a complex product and should be withdrawn from the market. It feels that the customer may not understand the product. Such capital unit-linked products are sold in other countries but perhaps it is a difficult product for the regular customer."

Aviva India is another company that's likely to be hit by the latest IRDA directive.

While mis-selling has been a serious issue in the market in recent times, the stern action by IRDA on specific categories of unit-linked plans comes as the second major step since last July, when all unit-linked plans had to be locked in for a three-year period.

These unit-linked products, unlike other Ulips, are structured in such a way that they have two types of allocations in capital and regular units.

Ghosh said that as his company prepares new products, it would target more pension and children's products, for which it has applied to the regulator.

Bajaj Allianz is one of the few private life companies that have already started making profits. According to Ghosh, the company has a "cost under-run" as most of the expenses are covered within the cost structure.

An Aviva spokesperson said, "We have no communication from the IRDA on any ban on actuarial-funded products. All our products, including the one where actuarial funding has been used, have been pre-approved by IRDA and are designed on sound actuarial principles."

"We have been selling these products for years in the country and these have been approved by the regulator as they follow all guidelines and regulations laid down by IRDA. None of our products are detrimental to the interest of any existing or prospective customers. In fact, one of our actuarial-funded products was approved as recently as May 2007," the spokesperson added.

Ulip customers to sign certificate of approval

DNA Money

Customers will have to sign a "certificate" stating approval and satisfaction while buying a unit-linked insurance plan (Ulip) for the first time.

The Insurance Regulatory and Development Authority (IRDA), as part of its drive to prevent 'mis-selling', is in the process of asking companies to prepare a one-page document with each and every Ulip, which is being sold to the insured.

This comes as a major move by IRDA, after having clamped down on specific actuarially funded products of a couple of companies.

The insurance regulator plans to keep on "discovering" the various discrepancies which may arise and cause discomfort to customers.

"We want to facilitate some kind of understanding to customers and, hence, have thought of asking the customer to sign a certificate which should state that he or she is satisfied with what the agent has said and the buy has been an informed choice," C S Rao, chairman, IRDA, told DNA Money.

All insurance companies are likely to formulate questions on each product and submit them to the IRDA for approval.

This additional page, in the form of a certificate, will come with the policy document.

"Apart from some instances of mis-selling, we were concerned with a number of advertisements, which were not, however, technically advertisements, but kind of pamphlets with tall promises distributed with newspapers or communicated over telephone. These pamphlets, at times, carried just names of agents promising high returns," Rao explained.

The most rampant form of mis-selling is the financial advisor or agent misleading the customer to unrealistic promises of 40-50 per cent returns verbally, on the basis of the stock market boom last year, although, in reality, they cannot give indicative returns of more than 10 per cent a year.

FIPB nod to ICICI's insurance holding co stake sale

Press Trust of India

New Delhi: The Foreign Investment Promotion Board (FIPB) has given its approval for ICICI Bank's proposal to divest 24% stake in its holding firm for the insurance business.

National Insurance sees Rs 1,200 cr from investment

Reuters

Kolkata: National Insurance Co Ltd expects to earn Rs 1,200 crore from its investments in debt and equity markets during 2007/08, up from Rs 1050 crore earned a year ago, a top official said.

"We have a well managed portfolio and with the growth of the equity markets, it is expected to give handsome returns in the current fiscal," Chairman and Managing Director, V. Ramaswamy, told reporters on Friday.

The firm has an investment portfolio of Rs 5,600 crore, 45 per cent invested in state bonds and the balance in equity and other related instruments.

National Insurance is targettting a gross premium income of Rs 4600 crore in 2007/08, compared with Rs 3827 crore last year, he said.

The net profit is expected to be Rs 500 crore against Rs 418 crore a year ago, he added.

"The growth in investment income, focus on retail and health insurance would fuel the growth in profitability and premium income," Ramaswamy said.

State-run firms such as New India Assurance, Oriental Insurance and National Insurance dominate India's general insurance sector, although there are private firms such as ICICI Lombard, Bajaj Allianz and Tata-AIG.

Foreign holding in Indian insurance companies is limited to 26 per cent. The government wants to increase the cap to 49 per cent, but such a move is opposed by its communist allies.

Insurance cover exclusively for women

DNA Money

Insurance for women? Must be a marketing gimmick, one would think. A chauvinist might even ask, "What's the need? I am the earning member, so why increase the premium burden?"

But, there are medical needs specific to women, which could require cash outflows, and it helps take a policy that covers these. Life Insurance Corporation of India's (LIC) Jeevan Bharati is one such policy. In fact, it is the only women-specific insurance plan in the country today, since Birla Sun Life discontinued its Woman First Plan.

A money-back policy with a term of either 15 or 20 years, Jeevan Bharati pays a certain percentage of the sum assured to the policyholder at regular intervals. In case of a 15-year plan, it pays 20 per cent of the sum assured each after the 5th and 10th years, respectively and the balance at maturity. In case of a 20-year policy, 20 per cent of the sum assured each is paid after the 5th, 10th and 15th years, respectively, and the balance at maturity.

The entire sum assured is given to the policyholder if she is detected with the five women-specific critical illnesses. Also, if a policyholder below 41 years gives birth to a child who is detected with any of 8 other listed defects, then 50 per cent of the sum assured is paid out.

What's more, as the child disability benefit cover ceases once a woman turns 41 years, the policy premium reduces accordingly. For instance, if a 25-year-old woman takes a Rs 1 lakh insurance cover for 20 years, then her annual premium is Rs 7,345 until she turns 41 years and Rs 7,085 for the remaining years.

Though one can opt for a sum assured up to Rs 25 lakh, the benefits paid for critical illnesses for the mother are capped at Rs 2 lakh, while those for the child have a ceiling of Rs 1 lakh.

The critical illness benefits are not optional, but built into the product. As a result, the cost of Jeevan Bharati is higher than other money-back products in the market. An Rs 10-lakh policy of Jeevan Bharati would cost a 25-year old Rs 69,650 annually. In contrast, the annual premium for LIC's regular money-back policy for 20 years would cost Rs 61,729, while that for Jeevan Tarang would be lower at Rs 48,220.

In return, the policyholder also gets guaranteed benefits to the tune of Rs 50 per Rs 1,000 sum assured during the first five years of the policy. Bonuses are paid thereafter. Notably, in 2005-06, LIC paid a bonus of Rs 37-42 per thousand sum assured, depending upon the term, on its money-back plans.

Besides, if the policyholder doesn't survive the entire term, the sum assured in addition to the guaranteed addition during the first five years and bonuses thereafter are paid irrespective of the survival benefit paid earlier, which makes the policy all the more attractive.

But, what if you already have a life cover from another insurance company? If you have taken a policy from either Birla Sun Life or Bajaj Allianz, just add the critical illness riders for women that these companies offer to the existing policy. The edge these riders have over Jeevan Bharati is that they cover even primary illnesses such as heart attack, brain tumor, kidney failure, anaemia and arthritis, which women are prone to.

Indeed, according to Mumbai-based gynaecologist Dr Surabhi Dalmia, "Arthritis and anaemia are most common illnesses among women."

Birla Sun Life's Critical Illness - Woman Rider covers 29 illnesses, while Bajaj Allianz's MahilaGain offers benefits for 25 illnesses, apart from paying 30-40 per cent of the sum assured for reconstruction of breasts post breast cancer surgery.

It’s time Kumbhakaran woke up

Mumbai: Legend has it that Kumbhakarna, one of Ravana’s brothers in the Ramayana, had a boon from Brahma, which allowed him to sleep for six months at a stretch. He woke up to eat and then went to sleep again. A similar thing seems to be happening with the Insurance Regulatory and Development Authority of India (IRDA), the regulator, which has turned a complete blind eye to the mis-selling that has been going on in the insurance industry.

Every few months, the Hyderabad-based regulator evinces concern about the mis-selling, makes a few right noises about it and then goes to sleep again. The inactivity makes one wonder if it, too, has a “boon” from some higher power.

Most mis-selling typically involves selling a high-cost unit-linked insurance plan (ULIP) to an unsuspecting investor. Depending on the insurance company, the premium allocation charges can vary from 15 per cent to 71 per cent in the first year.

What this means is that if an ULIP charges a premium allocation charge of 30 per cent in the first year of the policy, only 70 per cent of the total premium paid actually gets invested. The premium allocation charges remain high even in the second year of the policy. These high charges are essentially used to pay fat commissions to insurance agents (which may be banks or individual agents or big corporate distributors).

Insurance agents do not inform the individuals taking such policies about the high upfront expenses involved. Also, most agents tell their customers that an Ulip is a three-year policy and that they can stop paying premiums after three years, which is far from the truth.

The reason agents do this is simple. Their commissions are not as high in the latter years of the policy as they are in the first three years. So, it is in their interest if the individual stops paying premiums after the first three years.

Once three years are over, the same agent can sell a new Ulip to the same individual and continue getting his high upfront commission. The sad part is that most individuals who are the victims of mis-selling belong to the great Indian middle class, who work hard to earn their money.

Insurance firms tell us that they can’t be held responsible for their agents’ mis-selling. Well if they are not responsible, who is? Agents are the face of an insurance company, considering an agent can sell policies of only one company. Logically, therefore, if the agents of a company behave inappropriately, it is the company that must be blamed.

And why do agents mis-sell?
Primarily because of they can earn a high upfront commission. In fact, a lot of new generation private sector banks and foreign banks have lately been concentrating primarily on selling Ulips, because the reward per unit of effort is much more compared to other financial products.

The high upfront charges mean that an individual taking the policy is left completely dependent on the insurance company’s performance. If a mutual fund does not do well, investors have an option to exit the scheme. Also, they can stop making further investments into the mutual fund. Besides, most mutual funds do not charge an exit load if the holding period of the investment is more than six months.

In case of an ULIP, however, the investor has little choice even if it does not give him good returns. He has the option to exit, of course, but after three years. By then, he would have already paid a lot by way of premium allocation charges and the amount he gets back, if he cashes out at the end of three years, may not even match the total premium paid.

Indeed, the high upfront charges make ULIP a very inflexible way of investing. If your ULIP does not perform, you are stuck. Insurance companies would like us to believe that their expense structure works out to be a lot lesser in the long run. Point taken. If that is the case, why not spread out the expenses over a longer term? Why is there such a haste to recover as much as they can from the investor in the first two to three years?

The rationale given is that selling insurance is much more difficult that selling other financial products and hence the agent needs to be adequately compensated. This argument is questionable.

Another argument is that the world over, ULIPs have high upfront charges. How does that justify having high upfront charges in India as well? Do two wrongs make a right?

So what is the solution? Instead of a premium allocation charge of say 60 per cent in the very first year of the policy, why not have a premium allocation charge of 3 per cent every year, over a period of 20 years? This will at least ensure that distributors stop getting the high upfront commissions, and hopefully stop mis-selling.

However, to implement this, IRDA must first wake up from its deep slumber, and wake up before it is too late, since a lot of private sector insurance companies have big plans for the rural market. Imagine the kind of mis-selling possible in the rural markets.

The regulator and insurance companies must remember that many retail investors have turned away from the stock market following the various scams over the years. Unless necessary action is taken at the earliest, the same story could be replayed in the insurance business as well.

Source: DNA Money

Aviva Life posts 29% growth in H1

Hyderabad: Aviva Life, a joint venture company with the Dabur Group, posted a 29 per cent increase in its business in the half year ended June 30, 2007.



The total sales increased to £221 million in the first six months of 2007 as against £173 million in the comparable period in 2006. The company has not disclosed the operating profits in the region.

‘`The life operating profit (on European Embedded Value -EVV basis) increased 24 per cent with growth across all regions (including strong growth from Asia) on worldwide sales growth of 25 per cent to £19,294 million inclusive of general insurance and asset management businesses,” Philip Scott, Group Finance Director, Aviva Plc told Business Line in a teleconference from London on Thursday.

However, the global operating profit of the UK-based major decreased by 8 per cent to £1,541 million in the first six months of the current year as against £1,699 million in the comparable period previous year.

This was due to 34 per cent decrease in general and health insurance profits in the UK market on account of bad weather, he added.

According to Simon Machell, Chief Executive, Aviva (Asia), the company had put in place a new business model to operate on a regional basis. This would drive business further in potential growth regions such as Asia-Pacific, he added.

On the plans for India, Bert Paterson, Managing Director (India and Sri Lanka) said the growth momentum in Indian market was expected to continue. The company would add 4,000 more personnel to current 27,000 strong direct sales force in the country, he said.

Source: The Hindu Business Line

Corporates run for kidnap cover

These are one of the most hush-hush and discreetly sold policies in extreme privacy by the insurer to the corporates.



Call it the kidnap, ransom, extortion, K&R cover or crisis coverage insurance. They are gaining much ground these days and enquiries of such policies are said to be going up by 15-20 per cent.

Once supposedly opted by companies for kidnap-prone areas like northeastern India, and, more recently, for Naxalite- and Maoist-prone areas, Indian corporates are opting this cover for their executives travelling or working internationally in countries like Latin Amercia, Gulf countries or Africa.

Insurers and corporates are extremely tight-lipped when it comes to disclosing the names of companies taking this cover.

Coporate houses are also secretive about these policies- that seems obvious as disclosing any information would put them in the public domain.

Companies like Tata AIG, ICICI Lombard, National Insurance and Bajaj Allianz have devised these policies.

But insurers said that the growth of these policies have gone up in recent times - be it for the alleged kidnapping of a corporate in Gurgaon last week or the high-profile kidnappings in Noida or a Food Corporation of India official in Assam.

Being very sensitive, a K&R policy is issued in strict confidence with only the top-level officials in insurance companies and corporate houses knowing about it.

DNA Money spoke to a host of insurers and corporate houses to get a feel on the significance of such policies.

"We've been receiving enquiries of such policies in recent times. These are wide covers that encompass various parameters like the ransom payment, fee of the negotiator, expenses of counselling families, psychiatric care, medical help and rehab expenses. But the strength of the policy lies in the efficient claims-settling process, where professional firms generally come into the picture," Anuj Tyagi, national manager, reinsurance, ICICI Lombard Insurance, said.

"The profile of a customer is generally varied, including manufacturing, IT and civil contractors with exposure, in say, Gulf countries like Afghanistan. All these policies are largely reinsurance-driven," Tyagi said.

The premium depends on a number of risk features and broadly this could vary between 2-5 per cent of the limit of the liability. While there are no upper or lower limits, the policy cover may vary between $1 million and $5 million (about Rs 4-22 crore).

Barun Das, company secretary, Exide Industries, said, "We have never looked at this policy. We offer a standard accident cover and covers to protect physical disability. In places like Gurgaon, there is display of lavish opulence, which leads to discontent and, hence, such incidents of kidnapping."

McLeod Russel, the largest plantation company in the country, also does not have this cover for its executives.

"I do not think it is needed for Assam, where we operate as we are adequately protected by the special police force of the state government. We are yet to consider whether we would take a call in future," K K Baheti, director, McLeod Russel, said.

According to D P Chakravarti of Goodricke, these policies were very complex and phenomenally expensive.

Source: DNA Money

Actuarial-funded ULIPs to be phased out

The Insurance Regulatory and Development Authority (IRDA) has decided to phase out actuarial-funded products in the Unit Linked Insurance Product (ULIP) segment.

In a release issued here on Saturday, IRDA said though technically there was nothing wrong with the actuarial products, the objective of the move was “to remove the complexity in the unit linked products and ensure comparison across ULIPs of all companies.”

IRDA had asked companies having actuarial-funded products to withdraw them over a period of time, the release said without, however, mentioning the specific time frame.

The interests of the existing/new policy holders would be protected by the insurer and the Authority, it added.

Meanwhile, in a statement on IRDA’s decision, Mr Bert Paterson, Managing Director, Aviva India, said, “We are happy to see the clarification issued by IRDA, today, saying that there is nothing technically wrong with actuarial-funded products.”

Phase-out impact
The company did not respond when asked about the likely impact of the phasing out of actuarial fund products on its business.

Actuarial-funded products differ from the other products as the initial allocations of the sums by the insurer to the policyholder’s account in the first year would be done in the form of actuarial units which would be converted into real money later.

Source: The Hindu Business Line

SBI Life plans to expand business to Rs 6,000 cr

‘Potential for growth in insurance high’

‘The focus so far has been on topline growth but we would like to lay emphasis also on bottomline growth through offers of proper product-mix.’

In its bid to double the size of business to more than Rs 6,000 crore in the current year over last year, SBI Life Insurance, the life insurance arm of State Bank of India, has initiated several measures.

These include, among others, creating more zones, delegating more authority to each zonal head and broad-basing the incentive mechanism for distribution of products through the banking channel.

“Our health insurance products will hit the market shortly,” Mr Uday Sankar Roy, Managing Director & CEO of SBI Life, told Business Line here on Monday. “The products will be very customer-friendly”. The mirco-insurance products, especially for self-help groups too, would be ready within the next few month, he said.

More zones
The number of zones, he pointed out, had been increased to eight from four. For example, the east zone now comprised West Bengal, North-East and Andaman & Nicobar Islands.

Earlier, Orissa, Bihar and Jharkhand were under the east zone. Orissa has now been tagged to Andhra Pradesh while Bihar and Jharkhand to Uttar Pradesh.

The zonal heads would now also coordinate the operations of different distribution channels to achieve growth through inter-channel homogeneity, Mr Roy said.

“The focus so far has been on topline growth but we would like to lay emphasis also on bottomline growth through offers of proper product-mix,” he said.

Since the banking channel accounted for 55 per cent of SBI Life’s total business, it was imperative that those active in the channel were suitably rewarded to make them responsive to the current market dynamics, he said.

Growth areas
SBI Life, according to its Managing Director and CEO, has noted that predominant growth areas were not necessarily the metros.

“The predominant business modules are mostly cities and towns outside the metros and we’re therefore focusing on certain non-metro areas to tap our business,” he said.

“The potential for growth in insurance business is very high,” Mr Roy said pointing out that despite competition the state-owned Life Insurance Corporation of India was posting 100 per cent growth. “In due course, we would like to position SBI Life as the alternative to LIC,” he added.

Source: The Hindu Business Line

Munich Re keen on India ventures

Group company Ergo in talks with potential partners

Munich Re Group, the world’s second-biggest reinsurer, hopes to capitalise on the growth opportunities in India. With its group company Ergo International AG, it is looking for joint venture partners in the life and non-life business.

Addressing a press conference here on Thursday, Dr Nikolaus von Bomhard, said, “Ergo is currently involved in promising talks with potential partners. We welcome joint ventures with banks or any other companies operating in other lines of business as long as they have a strong brand name and presence across the country.”

Munich Re wants its future India joint ventures to be among the top five in their segment within a time frame of five to ten years after their launch, and forecast double-digit growth in the country.

MoU by year-end
The company said that it was close to finalising memorandums of understanding (MoU) with partners in the life and non-life business and expects at least one of the MoUs to be signed by the end of the year. “Looking at the way things are moving, we expect to sign the non-life business before the life business. But then things might change as we move ahead,” Mr von Bomhard said.

Regarding reinsurance, Mr von Bomhard said that the Indian market continues to be heavily regulated with the State-owned re-insurer occupying ‘a quasi-monopolistic position’.

“As soon as legal circumstances permit, we will establish a reinsurance base in India,” he added.

Market potential
According to estimates, the insurance market in the country is expected to grow five-fold to €100 billion ($138 billion) in 10 years’ time, bolstered by strong economic growth and a burgeoning middle class already numbering 300 million people.

Munich Re this week raised its 2007 earnings target range to €3.5-3.8 billion from €3-3.2 billion previously, partly on expectations of a lower tax burden, after delivering stronger-than-expected second quarter earnings.

Source: The Hindu Business Line

Motor pool seen positive for PSU insurers

Technical glitches to be ironed out by month-end

Transfers of third party covers to motor pool would help contain claims. The pool, being a specialised agency, would manage risks better and help plug leakages that have so far been the bane of the public sector insurers.

Underwriting margins (UM) of public sector insurance companies are expected to improve with the India Motor Insurance Pool (IMIP) in operation now.

Speaking to BusinessLine, the Oriental Insurance Company Ltd Chairman and Managing Director, Mr M Ramadoss, said, “The pool will certainly have a positive effect on the underwriting margins of PSU insurers.”

So far each of the PSU insurer’s underwriting margins have been pulled down by losses in the motor vehicle segments. Claims ratio in the motor third party was close to about 150 per cent for the industry during the last financial year. OICL’s losses in third party claims were in the region of Rs 300 crore.

The losses have kept underwriting margins low. Underwriting margins is a computation used to determine the amount of underwriting loss or gain—based on 100% being the break-even point. Any time the total loss ratio and expense ratio versus the amount of premium written is less than 100%, it is indicative of an underwriting profit. If over 100%, it shows an underwriting loss.

The margins for the PSU insurers are very slim - between 0.5 and 1 per cent implying low levels of profitability. Sources said that since most private insurers have consistently stayed away from motor third party risks, their underwriting margins were close to about 5 per cent, implying high levels of profitability. However, Mr Ramadoss, who is also the chairman of the General Insurers Public Sector Association, emphasised, “Underwriting margins will change and will improve. I cannot give a time frame. It could happen this year or even next year. But it will definitely improve.”

The optimism stemmed from the fact, that transfers of third party covers to IMIP would help contain claims. The IMIP would take the risks off the insurers’ books. Motor TP comprises about 30 per cent of PSU insurers’ premiums. Moreover, he said, the pool, being a specialised agency, would better manage the third party risks and help plug leakages that have so far been the bane of the public sector insurers. But the pool itself is faced with technical problems.

Mr Ramadoss said that the problems would be ironed out by the end of this month and data transfers from all the PSU insurers to the IMIP would be completed by then.

The reduction in losses and improvement in margins would also be helped by the installation of Core Insurance Solutions (CIS). Only OICL has completed the installation of this software. But other PSUs are also expected to complete CIS this year.

Besides, what was also expected to help the underwriting margins for the PSU insurers was the fact, that barring motor third party, all other portfolios have claims ratios of less than 60 per cent.

Source: The Hindu Business Line

Insurers here feeling US sub-prime heat

Private players may take harder hit

The contagion effect on domestic capital markets such as fall in Sensex and hardening yields imply a depreciation in the value of financial assets of the insurers.

India’s general insurers are becoming nervous as the meltdown in the US sub-prime mortgages market gathers momentum.

The jitters come even as domestic reinsurance requirements are on rise. Some of the major reinsurance companies with whom Indian general insurers have treaties and facultative Reinsurance (FacRe) arrangements include European reinsurers.

Speaking to Business Line, the General Insurers Public Sector Association Chairman, Mr M. Ramadoss said, “We are watching the situation. But there is no worry. PSU reinsurance arrangements are only with AAA-rated reinsurers.&# 8221;

However, even AAA-rated reinsurers, such as Munich Re have revealed that they had exposures equivalent to €600 million ($822 million) in the US sub-prime market.

The exposure of Allianz Insurance, the Europe’s largest insurance company, is estimated at €1.7 billion.

But Indian insurers also have reinsurance arrangements with lower rated companies for their FacRe contracts.

(In FacRe contracts, reinsurers have no underwriting obligation, but can assess each risk individually).

‘No fear’
Insurers said they feared no defaults from reinsurers, in view of their global size and the comparatively small size of Indian liabilities.

But domestic insurers have suffered reinsurer defaults from Asia companies in the past.

In fact, the Insurance Regulatory and Development Authority has already sent a note to all the general insurance companies seeking details of such past defaults. Indian insurer defaults from reinsurers are estimated at close to about Rs 1,000 crore, mostly from East Asian companies due to insolvency.

But sources said the sub-prime meltdown was likely to hit the private sector insurers worst, in view of their high reliance on reinsurance markets.

The high reliance was largely for meeting the stringent regulatory solvency margin of 150 per cent and low retention ratios. Solvency marginis the excess of capital and value of assets over the insured liabilities.

High retention capacities
In the public sector, however, the combined capitalisation of the four companies – New India Assurance Company Ltd, National Insurance Company Ltd, United India Insurance Company Ltd and Oriental Insurance Company Ltd, is about Rs 15,000 crore, implying very high retention capacities. But even PSU capital may be insufficient, if insurance coverage is to increase to Asian levels of 6 per cent of GDP.

The sources said the sub-prime impact on the insurers would also be felt due to the contagion effect on domestic capital markets. Falling values of the Sensex and hardening yields implied a depreciation in the value of financial assets of the insurers. This depreciation, the sources said, would have a direct impact on the solvency margins of the insurance companies.

This was especially at a time when insurers were preparing to move into a regime of dynamic solvency reporting instead of the current annual reporting.

Source: The Hindu Business Line

Andhra Bank eyes insurance partner

Hyderabad-based Andhra Bank was scouting for strategic partners to foray in life insurance sector by the end of the financial year 2007-08, said K Ramakrishnan, chairman and manging director Andhra Bank on the sidelines of annual Ficci Banking Conclave on Thursady.

Ramakrishnan said the bank intended to hold at least 26 per cent stake in joint venture company, and Bank of Baroda was one of the potential partners for the project. He further said the bank was keen to enter general insurance sector in partnership with other banks in the near future.

“Currently the insurance venture is in a nascent stage and we are yet to decide on the partners,” he said, adding, “we have a strong synergy with the Bank of Baroda.” This apart, the bank plans to open representative offices Saudi Arabia, Oman, Kuwait and Qatar by the end 2007-08.

“We are looking for a presence in the Middle East to tap a few million expatriates from Andhra Pradesh,” he said.

The bank plans to open its second overseas office in New Jersey after the necessary approvals from the US government.

Currently, the bank has one foreign office in Dubai, and is looking for a presence in Malaysia in alliance with with the Bank of Baroda and Punjab National Bank.

Domestically, the bank plans to open 85 new branches and 200 ATMs this year across the country. Nearly 50 per cent of the branches would be in rural areas, said Ramakrishnan. At present, the bank has 1,303 branches in the country, with nearly 900 in Andhra Pradesh.

With the current business of around Rs 70,000 crore, the bank plans to reach the 1 lakh crore mark by the end of 2009. Also, this fiscal the bank is looking at 25 per cent and 23 per cent increase in credit and deposit respectively.

The bank has identified education and housing as priority lending sectors, and plans to decrease the lending rates in the two sectors by 25 basis points across segments in the coming months. Last year the bank disbursed Rs 1,000 crore as education loan, and Rs 3,900 crore as housing loan.

With the headroom of around Rs 3,000 crore, the bank plans to raise Rs 400 crore in the tier II category by December 2007.

Source: Business Standard

Complex ULIP face Irda whip

Irda bans unit-linked insurance plans which charges are based on complex structure.


The Insurance Regulatory and Development Authority of India (Irda) has banned unit-linked insurance plans (ULIPs) in which charges are based on a complex structure, making it difficult for policyholders to comprehend.


Such products in insurance parlance are called acturial-funded products. The ban would require Aviva Life Insurance to withdraw all its 14 ULIP products, while Bajaj Allianz one of its ULIPs called Capital Unit Gain.

Bajaj Allianz has been directed to withdraw Capital Unit Gain, the deadline for which is the end of next week, while the regulator has been a little considerate with Aviva Life Insurance. Irda has not set any deadline for Aviva to withdraw its ULIP products as the company would need more time to develop new products and then seek the regulator's approval.

“Bajaj Allianz has been given a time frame of 15 days. Aviva Life will have to introduce a new set of products to replace the ones they are using right now and will, therefore, be given more time,” said C S Rao, chairman, Irda.

Insurance sources said Bajaj Allianz Life reported a profit of Rs 30 crore in the first quarter of 2007-08 and Rs 63 crore in 2006-07 mainly on account of Capital Unit Gain.

Under the other ULIP schemes, charges are deducted upfront when the premiums are paid, which could range up to 40 per cent in the first year.

In acturial funded products, the first-year premium is treated as initial premium and is put under an initial management account called acturial funding. Every year 5 per cent of the premium is deducted as initial management cost and 5 per cent as premium allocation charge.

In the second policy year, again a 5 per cent charge is deducted as premium allocation and another 5 per cent from the first year premium as initial management cost. So, for every year a customer loses 5 per cent as premium allocation and 5 per cent as initial management charges.

Assuming that the policy tenure is 20 years and the customer wants to withdraw after three years, the policyholder loses 100 per cent of premium net of charges, 75 per cent if his policy tenure is a 15-year policy and 50 per cent if it is a 10-year policy.

“Acturial-funded products mislead customers into feeling that they have more benefits. While normal ULIP products charge policyholders upfront for all administration and fund management expenses, an acturial funded product will spread it over a period of time. So, a policyholder feels that he has got a larger number of units. Such products are not in the larger interests of the policyholders,” said Rao.

“In several western countries, regulators realised that these products are misleading and have asked companies to withdraw them,” said Rao.

When asked why the Irda approved these products in the first place, Rao said, “It is only after a product is marketed that you realise all the loopholes and then you make a correction. Three weeks ago, the Irda had asked the Acturial Society of India to give its opinion on acturial funded products and it was suggested that these products are not appropriate.”

Bajaj Allianz officials were unavailable for comment. An Aviva spokesperson said: “We have had no communication from Irda on any ban of actuarial-funded products. All our products, including the ones where actuarial funding has been used, have been pre-approved by Irda and are designed on sound actuarial principles. We have been selling these products for years in the country, and these have been approved by the regulator as they follow all guidelines and regulations laid down by the Irda. None of our products is detrimental to the interest of any existing or prospective customers. One of our actuarial funded products was approved as recently as May 2007.”
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THE ORDER

The ban would require Aviva Life Insurance to withdraw all its 14 ULIP products
Bajaj Allianz will have to withdraw one of its ULIPs called Capital Unit Gain
Bajaj Allianz has been directed to withdraw Capital Unit Gain, the deadline for which is the end of next week
IRDA has not set any deadline for Aviva to withdraw its ULIP products as the company would need more time to develop new products and then seek the regulator's approval

Source: Business Standard Reporter

PNB to review holdings in joint ventures

Punjab National Bank (PNB), the third largest public sector bank, is reviewing the shareholding patterns of all its existing joint ventures.

PNB has three operational joint ventures with the US-based Principal Financial Group and a 20 per cent holding in Nepal’s Everest Bank.

The three JVs are Principal PNB Asset Management Company, PNB Principal Financial Planners, an investment advisory and financial planning services company, and Principal PNB Insurance Advisory Company, an insurance broking firm.

“We are reviewing the operations and (shareholding) structures of these companies. We will then see whether we want higher stakes in the ventures or sell our stakes. We have informed our partners that we are reviewing the ventures. As of now, the ventures stand,” PNB Chairman and Managing Director K C Chakrabarty said.

PNB has 30 per cent stakes each in Principal PNB Asset Management and PNB Principal Financial Planners with Principal owning 65 per cent stake and Vijaya Bank the remaining 5 per cent. In the insurance advisory venture, PNB holds 30 per cent equity, with Principal holding 26 per cent, Berger Paints 25 per cent and Vijaya Bank 19 per cent.

Mangalore-based public sector bank Vijaya Bank has decided to exit all these JVs and also the proposed life insurance venture, as the stakes do not make any significant additions to its revenues.

PNB is likely to complete the review in six months. The bank is also having a relook at the need to continue with its subsidiaries, PNB Gilts and PNB Housing Finance. The bank is examining whether greater shareholder value could be derived by merging the two subsidiaries or by keeping them as subsidiaries.

“The reason for the review is that we have too many subsidiaries (ventures). We need to see how to capitalise them. Besides, some of the subsidiaries are over-capitalised. The bank also has capital adequacy issues. We need to look at more effective use of capital,” Chakrabarty said.

The bank’s capital adequacy ratio stood at 12.41 per cent at the end of the first quarter of 2007. The bank requires at least Rs 4,000 crore over the next two years. The government holds 57 per cent stake in PNB, which is closer to the minimum required 51 per cent.

Chakrabarty said raising capital was not on immediate agenda, and the bank had room to raise Rs 1,500 crore of tier-I capital through perpetual debt and another Rs 1,500 crore through tier-II bonds.

“Vijaya Bank is still in the process of working out the modalities of its exit. The bank is likely to finalise (modalities) in the next 10-15 days,” said Prakash Mallya, chairman and managing director of Vijaya Bank.

“If we are approached by Vijaya Bank to buy its stake, we would then ask them to first let us formulate our view and to wait for two more months or so. If Vijaya Bank wants to sell their stake to a third party, then we have no problem,” said Chakrabarty.

The proposed life insurance foray of PNB, Principal, Berger Paints and Vijaya Bank has already hit a roadblock and looks unlikely to get off the ground.

“There has to be some rethink on the proposed venture. There is a problem as some of the shareholders are not willing to participate,” said Chakrabarty.

Source: Business Standard