Thursday, July 31, 2008

Reliance gets EPF deal

Anil Ambani's Reliance Capital has been selected along with two other private companies to help manage the employee provident fund which is worth a whooping Rs two lakh 50 thousand crore.
However, the inclusion of Anil Ambani led Reliance Capital as one of the fund managers for the Employee Provident Fund has angered the Left and the Leftist trade unions are alleging foul play.
The CPM alleges the late selection of Reliance Capital is a payback for the trust vote.
Fresh from the victory in the trust vote and with no allies to wave the red flag, the Government seems to have taken the first step in putting the reform process back on track.
The move to allow private fund managers to manage a part of Rs two-lakh fifty thousand crore provident fund corpus has run into controversy.
The CPM and left allied trade union allege that only three players were given the clearance by the committee but it was expanded for a fourth player to enable Anil Ambani owned Relaince capital to co-manage provident funds.
The Government, they allege, was returning the Samajwadi Party a favour - of bailing them out from the crisis.
"It is a political move," says CPI (M) Politburo Member, M K Pandhe.
However, it is not just the politicians who are alleging foul play.
Sources in the mutual fund industry tell CNN-IBN that HDFC and Birla Sunlife had quoted a nil asset management fee in the tender. Tenders usually favour the company that quotes the lowest rates. That apart they also need pass the technical bids.
Sources say bids from HDFC and Birla Sunlife were rejected based on an earlier court judgement that no service can be rendered without consideration.
That left four players in the fray. HSBC quoted the lowest rates, followed by ICICI Prudential and SBI.
And, what was meant to be a best of three, suddenly saw a fourth player in the form of Anil Ambani's Reliance Capital.
The labour ministry has maintained that the entire process has been transparent. But the manner in which a fourth player was squeezed in to manage the graveyard benefits of four crore employees does raise many question marks of credibility and transparency.
Source: CNN IBN

Price cuts help private cos gain share of motor insurance mkt

Private non-life insurance companies have increased their share of motor insurance, following introduction of free pricing. Private insurers’ share of premium from comprehensive insurance of vehicles is 50% for 2007-08 against 41% a year ago. According to data released by insurance regulator Insurance Regulatory and Development Authority (IRDA), private life insurance companies generated a premium of Rs 4,061 crore from sales of motor insurance cover for ‘own damage’. Own damage or comprehensive cover refers to that part of motor insurance that is voluntary and covers the risk of damage to the vehicle. A year ago, private companies had written only Rs 3,115 crore from this segment. Private insurers have been able to wrest market share from state-owned companies because of aggressive price cuts and tie-ups with automobile dealers. Among private companies, growth in this segment was driven by Reliance General Insurance and Bajaj Allianz both companies increased their motor own damage portfolio by 124% and 50%, respectively. Interestingly, largest private life insurer ICICI Lombard went slow in motor and its own damage portfolio actually shrunk 5%. Interestingly, it is not just the profitable own damage segment that private companies have increased market share. Private companies have made inroads into the compulsory third-party liability portfolio as well. Until a couple of years ago, private companies were shunning the third-party liability covers, as rates on this were frozen and claims ratio were too high. However, following revision of the rates in 2006, private companies have slowly increased market share in this segment as well. In 2006-07, private companies wrote third-party business amounting to Rs 1,528 crore which is two-and-a-half times of the Rs 596-crore business they did in 2006-07. The market share of private companies in this segment has gone up to 33% from 19% a year earlier. Private companies have been able to increase their market share in motor insurance, to a much larger extent than they could increase overall market share. Overall private companies accounted for 40% of total business of Rs 28,126 crore in 2007-08, up from their market share of 35% of the total business of Rs 24,998 crore in 2006-07. Motor and health insurance have been the drivers of growth in 2007-08. Property insurance has seen negative growth on account of detariffing which has resulted in fire insurance premium for the industry declining to Rs 3,516 crore from Rs 4,157 crore a year ago. ICICI Lombard and Tata AIG have been the only two companies to have increased their premium from fire insurance in 2007-08.

Source : The Economic Times

Govt to give Rs 1,000 cr more to LIC for Aam Admi Bima Yojana

The government on Thursday decided to provide an additional Rs 1,000 crore to Life Insurance Corporation to cover another one crore rural landless households under the social security scheme 'Aam Admi Bima Yojana'. The scheme will cover an additional one crore landless households by September 30, 2009 under the AABY to provide death and disability benefits to the head of the family or earning members of the family, Information and Broadcasting Minister P R Dasmunsi told reporters after the Cabinet meeting. The scheme, which is being implemented through the LIC, was launched on October 2 last year. The union government bears 50 per cent of the premium of Rs 200 per year per person and the state governments pays the rest of the premium on behalf of the beneficiaries. Besides, the Cabinet also approved giving Rs 500 crore towards Social Security Fund maintained by LIC to provide 50 per cent share of premium Janshree Bima Yojana for all women self help groups credit linked to banks. Dasmunsi said the decision will facilitate providing life and permanent disability cover to 2.5 lakh women SHGs under the scheme by March 31, 2009. Janshree Bima Yojana was launched in August 2000 to provide life insurance protection to the rural and urban poor under various vocational groups. The premium under the scheme is Rs 200 per member per annum, of which 50 per cent premium is paid by beneficiaries of the scheme and the rest pitched in by the government through the fund maintained by LIC. At present, there are 45 vocational or occupational groups covered under the scheme.
Source: The Economic Times

Wednesday, July 30, 2008

DECISION ON WHO MANAGES PROVIDENT FUND DEPOSITS

New Delhi: After two private fund managers, ICICI Prudential and HSBC Asset Management Company (AMC), emerged as front-runners to manage Rs 25,000-crore incremental deposits of Employees Provident Fund, a final decision on their fate will be taken on Tuesday by the apex decision-making body on the matter — the EPFO’s Central Board of Trustees.

The Board, chaired by labour and employment minister Oscar Fernandes, will meet on Tuesday to take a final call on recommendations of the EPFO’s Finance and Investment Committee. The committee, in its meeting held last week, had given nod to the pruned list of two private fund managers and a public fund manager, State Bank of India from among the seven private and three public fund managers that had qualified technical bids.

Meanwhile, legal opinion on eligibility of Asset Management Companies or other financial institutions in addition to banks as portfolio managers was sought from the labour and employment ministry. The opinion, which contained certain ambiguity, however, was put aside by Central Provident Fund Commissioner, A Viswanathan, stating that management and deposits or investment of EPFO funds are two different activities. Therefore, portfolio management by AMCs can be made as long as they channelized these investments in the name of the CBT and EPFO within specified guidelines.

However, the proposal is likely to be debated hotly within the board, with employees’ representatives, comprising of leading trade union organisations, opposed to private participation in the fund management.

Earlier, independent consultant, Crisil had been appointed by a three-member committee to assist EPFO in selection of multiple fund managers. Crisil has also been given the mandate to establish an Investment Monitoring Cell and help authorities in monitoring the performance of chosen fund managers for a specified period. Later, EPFO would be expected to build in-house competence for monitoring these fund managers’ performance.

Source: The Indian Express

MEET TODAY TO DECIDE ON EPFO FUND MANAGERS

New Delhi: Efforts by two private sector asset management companies – HDFC AMC and Birla Sun Life AMC – to provide fund manager services gratis for the Employees Provident Fund Organisation (EPFO) and pay certain statutory expenses on behalf of it have been rejected by EPFO’s finance and investment committee.

The EPFO has rejected the proposals made by the two companies based on the opinion of its external legal advisors. The private sector players suggested this strategy to garner a portion of the EPFO corpus (about Rs 1.4 lakh crore) under their management. There were a total of 10 qualified bidders in the fray for becoming EPFO fund managers.

The finance and investment committee, however, has recommended HSBC AMC and ICICI Prudential AMC as fund managers along with the present fund manager -- State Bank of India.

The Central Board of Trustees (CBT) of the EPFO will meet on Tuesday to take a final call on the matter. One of the CBT members, who is also a member of the finance and investment committee, told Business Line that HDFC AMC and Birla Sun Life had made the gratis offer to derive “goodwill” as fund managers of the second largest financial institution in the country after Life Insurance Corporation. This, they felt, would enable them to generate enough business to make good the losses that would be incurred for providing free services to the EPFO.

“The two companies had said that though they would charge no fee as direct consideration for the services to EPFO, but hoped to get compensated in terms of enhanced reputation and brand value,” a CBT member said, adding that the companies had quoted zero rates despite knowing that charges related to custodial services, which are to be borne by the fund managers only, are to be included in their fees. “This is an offer unheard of,” he said.

EPFO’s legal advisors have recommended rejection of the zero rate proposals stating that they are not legally enforceable. The legal advisors state that creation of goodwill cannot be considered as a consideration as it is intangible and uncertain in nature.

“As an agreement without consideration is not a valid contract, hence the defect/infirmity in the contract cannot be cured by relying on the performance guarantee,” they explained while recommending rejection of the proposals.

Source: The Hindu Business Line, The Financial Express

NOW, ALL PSU BANKS MAY GET TO TAKE EPF DEPOSITSIshta Vohra

New Delhi: Public sector major State Bank of India (SBI) is set to lose its monopoly as the only bank where provident fund receipts of over four crore subscribers are deposited. The EPFO establishment is understood to have mooted the possibility of expanding the network by including all other nationalised banks as deposit points. Speaking to the ET, Central Provident Fund Commissioner (CPFC) A Vishwanathan said the proposal to this effect has been mooted and “all nationalised banks have been approached for the same and a response is awaited.” The move is expected to address two key issues: Firstly, it would ensure faster clearance of PF remittances by banks. This would help depositors to start earning interest on their deposits sooner than before. Secondly, higher number of deposit points means increased accommodation of an additional 45 lakh-plus new subscribers expected to come under the ambit of EPF Act shortly. This follows the recent move by the central board of trustees (CBT), according to which, PF provisions will now be applicable to all establishments with 10 or more employees . The EPF Act was till now applicable only to establishments that employed 20 or more employees but the CBT, at its last meeting earlier this month, approved necessary changes in a concerted bid to bolster the EPFO’s sagging finances, thanks to increasingly lower returns on investments. The decision comes in tandem with the EPFO’s finance and investment committee (F&IC ) that on July 25 shortlisted three asset management companies — HSBC, ICICI Prudential and SBI — in the financial round (out of 15) to manage its yearly incremental deposit of over Rs 25,000 crore. “The process of clearing PF remittances and crediting them to the EPFO account will be much speedier than at present for subscribers. Currently, it can take as much as three days or even longer in the event the subscriber/employer does not maintain an account with SBI,” the CPFC pointed out. That delay has proved very costly for the EPF and its finances in the past several decades, as (F&IC ) discovered last year, after an auditor submitted his report on charges of mismanagement of funds by SBI to it. The auditor had cleared SBI of several charges that led to an yield of only 8.25% on the EPF’s investments in 2007-08 compared to the higher yields that even small investors were earning. Bulk deposits by corporate houses in the fixed income market, too, earned rates ranging from 10.5% and 13% for short maturities. The EPFO paid out 8.5% rate to its subscribers despite the poor earnings on investments for the year, leading to a deficit of Rs 263.78 crore. F&IC , which later complained formally to the Institute of Chartered Accountants of India (ICAI) against the auditor’s report, had alleged that SBI had let EPF funds, as much as Rs 150 crore at times on a day to day basis, lie idle in its branches for several days, denying appropriate returns. F&IC’s request of a day to day interest on the funds was turned down by SBI, citing RBI rules. The committee also charged that SBI had deliberately parked a good chunk of EPF funds in the bank’s own low yielding term deposits, ensuring that the EPFO’s returns were low even while the bank advantaged itself. “We hope to see a rise in our subscriber base soon, now that the CBT has approved changes in the EPF law that will bring establishments with 10 or more workers under its ambit. The larger collection base for retirement funds means that its management, and that includes collection, has to be better than it is now,” CPFC Vishwanathan said.

Source: The Economic Times

NOW, ALL PSU BANKS MAY GET TO TAKE EPF DEPOSITSIshta Vohra

New Delhi: Public sector major State Bank of India (SBI) is set to lose its monopoly as the only bank where provident fund receipts of over four crore subscribers are deposited. The EPFO establishment is understood to have mooted the possibility of expanding the network by including all other nationalised banks as deposit points. Speaking to the ET, Central Provident Fund Commissioner (CPFC) A Vishwanathan said the proposal to this effect has been mooted and “all nationalised banks have been approached for the same and a response is awaited.” The move is expected to address two key issues: Firstly, it would ensure faster clearance of PF remittances by banks. This would help depositors to start earning interest on their deposits sooner than before. Secondly, higher number of deposit points means increased accommodation of an additional 45 lakh-plus new subscribers expected to come under the ambit of EPF Act shortly. This follows the recent move by the central board of trustees (CBT), according to which, PF provisions will now be applicable to all establishments with 10 or more employees . The EPF Act was till now applicable only to establishments that employed 20 or more employees but the CBT, at its last meeting earlier this month, approved necessary changes in a concerted bid to bolster the EPFO’s sagging finances, thanks to increasingly lower returns on investments. The decision comes in tandem with the EPFO’s finance and investment committee (F&IC ) that on July 25 shortlisted three asset management companies — HSBC, ICICI Prudential and SBI — in the financial round (out of 15) to manage its yearly incremental deposit of over Rs 25,000 crore. “The process of clearing PF remittances and crediting them to the EPFO account will be much speedier than at present for subscribers. Currently, it can take as much as three days or even longer in the event the subscriber/employer does not maintain an account with SBI,” the CPFC pointed out. That delay has proved very costly for the EPF and its finances in the past several decades, as (F&IC ) discovered last year, after an auditor submitted his report on charges of mismanagement of funds by SBI to it. The auditor had cleared SBI of several charges that led to an yield of only 8.25% on the EPF’s investments in 2007-08 compared to the higher yields that even small investors were earning. Bulk deposits by corporate houses in the fixed income market, too, earned rates ranging from 10.5% and 13% for short maturities. The EPFO paid out 8.5% rate to its subscribers despite the poor earnings on investments for the year, leading to a deficit of Rs 263.78 crore. F&IC , which later complained formally to the Institute of Chartered Accountants of India (ICAI) against the auditor’s report, had alleged that SBI had let EPF funds, as much as Rs 150 crore at times on a day to day basis, lie idle in its branches for several days, denying appropriate returns. F&IC’s request of a day to day interest on the funds was turned down by SBI, citing RBI rules. The committee also charged that SBI had deliberately parked a good chunk of EPF funds in the bank’s own low yielding term deposits, ensuring that the EPFO’s returns were low even while the bank advantaged itself. “We hope to see a rise in our subscriber base soon, now that the CBT has approved changes in the EPF law that will bring establishments with 10 or more workers under its ambit. The larger collection base for retirement funds means that its management, and that includes collection, has to be better than it is now,” CPFC Vishwanathan said.

Source: The Economic Times

CHOLA MS TIES UP WITH CNRI

Cholamandalam MS General Insurance Company Ltd (Chola MS), a joint venture between Murugappa group and Mitsui Sumitomo Insurance of Japan, on Monday announced a tie-up with the Council of NGOs in Rural India (CNRI) to reach out of the rural market.

Source: The Financial Express

LIC FOCUS ON TRADITIONAL PRODUCTS

Mumbai: LIC Insurance Corp of India intends to shift the focus of its sales strategy towards traditional insurance products and tone down the emphasis on unit-linked insurance plans. In an interview to NewsWire18, Mr. Thomas Mathew, Managing Director, LIC said, “There is a shift in our focus, which is toward traditional policies. In the current financial year, we aim 70 per cent of the new business premium coming from ULIPs.”

Source: NW18, The Hindu Business Line

Tuesday, July 29, 2008

BoB TO VENTURE WITH FOREIGN COMPANIESPTI

Vadodara: 100-year-old city based Bank of Baroda will form two joint ventures with Italy and UK based companies for undertaking the business of mutual fund and life insurance, its chairman and manging director M D Mallya said. He said that BOB asset management, a subsidiary of Bank of Baroda has formed joint venture with Italy based pioneer company and the new company is registered as BOB Pioneer Asset Manageemnt Company, in which BOB has share of 51 per cent and rest are of the Italy based company. Bank of Baroda, Andhra bank and UK based Legal and General Company are also in the process of forming new joint venture company to be known as BOB Legal and General for undertaking the business of life insurance,he added. In this new joint venture, BOB's will have 44 per cent shares, Andhra Bank 30 per cent and rest 26 per cent shares will be with Legal and General Company. Malliya also announced the launch of two more branches in Gandhinagar and Kota Rajasthsn taking the total number of branches to five across the country.



Source: The Economic Times

Monday, July 28, 2008

FDI TO BOOST INSURANCE

Mumbai: With the hopes raised that the government will increase the cap for foreign direct investment in the insurance industry to 49 per cent from the present 26 per cent, the public sector companies could face tougher competition from the private sector.

Moody’s Icra outlook for the Indian general insurance industry observes that the capacities of the domestic partners would no longer constrain capital levels for joint ventures.

Today, despite all the constraints, the market share of the private sector is catching up and the two will likely to converge over the medium term. The market share of the public sector has come down to around 65 per cent in 2006-07 while that of the private sector has gone up to around 35 per cent in the same period from a little less than 30 per cent in the previous year.

The study says that in the past, private insurers had aggressively targeted the more profitable (and tariffed) corporate fire and engineering businesses by combining with discounted offers on de-tariffed products like personal accident and health and marine cargo and hulls.

The report said that the inherent operational flexibility of the private players, such as aggressive pricing, has allowed them to capture a greater share of large corporate accounts.

But such strong penetration of large corporate clients makes future growth in this segment more difficult. Mr Rahul Agarwal, CEO and managing director, Optima Insurance, agrees that competition for the public sector will go up if the joint venture cap is increased.

He said a lot of foreign companies will come and the Indian companies’ joint venture partners will pump in more money as they are cash starved. The JV partners feel that with just 26 per cent, they are only giving intellectual property. They would bring in more technology if the cap is raised. However, Mr Agarwal said, "market share should not be seen in isolation. Everyone grows. It happened in the case of Maruti and LIC."

The Moody’s report says further that the public entities lack the operational flexibility enjoyed by the private players. Their limited capacity to innovate has impacted their ability to tailor and aggressively price products for large corporations.

Source: Asian Age, Deccan Chronicle

‘YOU SHOULDN’T BUY A ULIP FOR INVESTMENT AND A MUTUAL FUND FOR INSURANCE’: ZANKHANA SHAH, MONEY PLANNER

Two mutual fund houses recently launched insurance features in their respective equity schemes. Rahul Jain of The Financial Express discussed the benefits and the caveats of the same with Zankhana Shah of Money Planner. Excerpts:

What could be the prime objective for adding the insurance feature in an equity mutual fund scheme, considering the current equity market situation?

There is no link between the negative sentiment in the market and providing an insurance benefit. The insurance benefit provided in an equity mutual fund scheme is a type of risk management and also gives personal cover. This feature is a very cost effective way of getting insurance with no extra cost to the investor. It is lucrative for the person who is going to take a cover for first time.

Do you think addition of the insurance component in a mutual fund scheme is actually beneficial to investors? How?

Not really because it is not substituting insurance. Insurance feature could be different in each fund house. In case of Reliance MF the insurance ceases to exist after tenure completion. Term insurance would be better for the ones who are going for a higher amount. The objective of going for investment and insurance cover is always different. You shouldn't buy a unit-linked insurance product for investment and a mutual fund product for insurance. Investors should not go for a mutual fund scheme because it has an insurance benefit.

The insurance feature in the mutual fund is limiting to switch or redeem the units because if one does so before three years, then the insurance cover expires. Your cover is related to your investment. The same is true with ULIP, where if the investment is reduced, there would be a proportionate reduction in the insurance cover.

Does this feature make the product better than ULIP and can it replace ULIP, considering the high cost structure?

Yes, it can replace/substitute a ULIP product. In ULIP there are allocation and mortality charges, which are comparatively on a higher side. If a person wants a 10-lakh cover for a tenure of 20 years, one can invest Rs 10,000 per month to get that insurance cover. However, there is a limit of Rs 15 lakh or 20 lakh insurance cover provided, unlike in ULIP where you can take Rs 50 lakh insurance as well. ULIP is being sold on the basis of insurance benefit and not investment because people go for insurance first. But if you go just for insurance, your investment needs are not fulfilled and subsequently your goals cannot be achieved. One should go for investment first and then insurance but practically it is opposite in the market.

This insurance featured product is more beneficial to the ones who are new and would like to have relatively less cover due to income limitation. Hence, one can get insurance by not paying any extra amount. This investment is less attractive for high net worth individuals (HNIs), whose insurance cover can go above 20 lakh.

Does this feature have any hidden charges other than load expenses and will that make any difference in the returns parameter?

There are no hidden charges and also it is better on the returns parameter, considering the cost involved in ULIP. A mutual fund is much more regulated and so the fund house cannot charge more than the prescribed limit unlike insurance, which comes under Irda regulation.

According to you, which one is better, if one excludes insurance benefit, mutual fund plus term insurance or ULIP? Why?

If one excludes the feature or not, mutual fund plus term insurance is much better than ULIP. The most important, as I said above, is cost effectiveness and the other is the choice of more than one fund manager. Because you can buy more than one mutual fund scheme and get the benefit of various fund managers. In ULIP if you buy more than one scheme then your total cost of insurance increases, which is nil in case of a mutual fund.

How many fund houses have introduced this feature/benefit? Do you think more will come in the near future, considering more redemption due to the downward and volatile trend?

As of date, only two fund houses have come out with the insurance feature. We could see others coming into this fray to garner more inflows. This additional feature product is also important in financial planning for any person. One more thing to note here is if all the fund houses came out with insurance, then the investor can get a higher amount of insurance with no extra cost to be borne.



Source: Financial Express

LIFE INSURERS – THE ROAD AHEAD

The insurance industry in India appears full of life. Having grown at double-digit rates in the last couple of years, it is no surprise that new players are still queuing up to enter the market.
But despite the huge untapped market potential that India has to offer, players may have to brace themselves for a slight dip in growth momentum, given the industry’s high reliance on market-linked insurance products. The unit-linked insurance policies, whose sales peaked in the last few years due to the bull run in the equity market, now make up as much as 85-90 per cent of the total insurance sales.


Slowdown – not yet
Would the recent downtrend in the equity market and the sector’s dependence on market-linked products pose challenges? The growth in premium collections during recent months provides no cause for concern. For FY08, while the industry grew by about 31 per cent, private players grew by 83 per cent; LIC registered a flat growth. However, the growth numbers for March 2008 were not as rosy. For private players, the growth in new business premium slowed down to 54 per cent in March.

The slowdown was sharper for LIC, which saw a 16 per cent decline in new business premium for the month. There, however, has been a rebound in the sector’s growth since then. Private players witnessed a 72 per cent year-on-year growth in new business sales in May 2008. This has also been on the back of a reshuffle in market shares between private players and the LIC, whose market share reduced to 38 per cent in May; it was about 48 per cent in FY08.

Players also hold the view that blips in the equity market would not materially impact collections, as ULIPs, as a product, target long-term investments. Mr Kamesh Goyal, CEO, Bajaj Allianz Life, feels, “Since the ULIP portfolio is managed with a long-term perspective, the hindrance of short-term swings in the market is countered to a great extent.” Will the growth continue if the equity markets fail to recover from their recent setbacks? The industry is not too sure of that. “The industry growth will definitely moderate. But that will be driven by both a high base effect and waning appetite for equity markets,” says Mr N.S. Kannan, Executive Director, ICICI Prudential Life Insurance Company. ” Despite that, the private sector is likely to manage a good 40 per cent growth this year”.

Most players are agreed that for long-term sustenance, there is a need for a greater understanding of equity-linked products. Any uninformed buying on the part of the policy holders or mis-selling by the insurance agents can bring the growth story to a halt in the long run. “Mis-selling will definitely impact the market badly,” says Mr Gary Bennett, Managing Director and CEO, Max New York Life. While currently there are not many genres of insurance products in India, Mr Bennett feels that India will, in a few years, see a host of new products getting introduced in the market. “ULIPs are a fantastic product, but they are not the only product. There is much more to come in India.”

Distribution holds the key
Product innovation apart, distribution looks to be a key ingredient for driving growth in the sector. “Insurance is still a push product in our country. So distribution is extremely critical,” feels Mr Kannan. “Agents need to create the need for insurance, especially in emerging markets like India, where research shows that life insurance is the last thing in the list of future purchases for the emerging middle class,” says Mr Goyal. So, while the industry’s fate may depend on the evolution of the need-based insurance products , the growth of individual companies would hinge on their distribution reach.
Mr Bennett says, “Distribution relationship is critical to the business as products can be replicated in no time.”

In a market that is quite homogenous, as far as insurance products are concerned, relationships with clients may be the only differentiating factor. Distribution capabilities and network cannot be easily replicated by competition; whereas, popular insurance products that manage to stir interest are easily imitable and can be offered by other players almost immediately.

“Production innovation can give a lead time of only six months before the product is replicated in the market. So that is the only short-term positive,” feels Mr Kannan. “For long-term growth, we need to look at continuous innovation in both products and distribution channels.”

Share of challenges
Expansion of the distribution network, however, has its share of challenges. Insurance companies with a direct distribution presence or the ones having distribution tie-ups with the promoter group’s bank (bancassurance) may have an edge over competition, given the IRDA’s regulation, which allows banks to sell policies of only one insurance company.

Insurers, who depend on other banks to cross-sell their products, may face challenges due to consolidation between banks. Higher dependence on banks that are potential acquisition targets maycall for the insurance company to periodically re-look its distribution tie-ups. The merger of Centurion Bank of Punjab and HDFC Bank is a case in point. Aviva Life, which sells its insurance products through Centurion Bank of Punjab, may have to find another bancassurance partner because after the merger, the bank may not be able to sell Aviva’s insurance policies. HDFC Bank already sells HDFC Standard Life’s insurance products.

More room for growth
, India however continues to be counted among the fastest growing insurance markets. “The Indian life insurance market has significant potential on account of low insurance penetration combined with low expenditure on life insurance,” says Mr Goyal. Even today, only about one-third of the addressable population in the country is covered under insurance. And the ones who are covered are under-covered, as over the last ten years income levels have shot up significantly. “Premium-to-GDP ratio in India is around 4.5 per cent. In UK, which is also a service economy, this ratio is 13 per cent. So, I think we are still under penetrated as far insurance is concerned,” says Mr Kannan. “Even if we consider the sum assured to GDP ratio, India is at 45 per cent, which is still below other Asian markets such as Singapore.”

It is perhaps this under-penetration that has enticed many newer players to enter our insurance market. HSBC, Fortis and Aegon are among the recent foreign players who have tied up with Indian companies to jointly float new insurance companies. The entry of new players would not only peg up the level of competition in this industry, it will also call for higher investments on distribution and infrastructure network by existing players.

Challenges galore for new players
New players, however, may find it more difficult as they will have much more to grapple with. Besides the higher capital expenditure, they can also have a tough time finding the right bancassurance partner. So, it is little wonder that some of the new insurance ventures have been floated with either domestic banks or with players who enjoy a high retail presence. For instance, IDBI Fortis Life Insurance Co Ltd, a joint venture between IDBI Bank, Federal Bank and Fortis will vend its policies through both the banks’ branches. On similar lines, HSBC’s insurance venture may ride on its branch network. “The reason for some of the private sector banks entering the life insurance sector can be to leverage on their customer base and branch network,” feels Mr Kannan.

“But new players should be willing to commit huge amount of investments for long term growth in this industry.” Among other companies that have entered the life insurance arena are Future Generali and Religare-Aegon. While they do not have any obvious bancassurance tie-ups in place, it bears attention that the Indian partners in both these ventures have a significant retail presence.

Source: Srividhya Sivakumar, (The Hindu Business Line)

ICICI LOMBARD EYES 20% SHARE

Mumbai: Largest private sector player in the motor insurance business, ICICI Lombard said it aims to increase its market share to 20% by 2010 from around 14% now. “We have around 12% market share in the country’s motor insurance business. By bringing new products, maintaining relationship with customers and offering better customer services, we hope to catch up 20% market share by 2010,” Eswaranatarajan, Head, Motor Insurance, ICICI Lombard told PTI.

New India Insurance is the largest motor insurer in the country controlling around 35% of the total market, which is pegged at 12,800 crore. The industry is growing by 20% year on year, he said.

Eswaranatarajan said that the company has opened ‘claim shops´ in various parts of the country aiming at reaching nearer to the customer and pay their claims fast. ICICI Lombard has a base of 25 lakh customers comprising 10 lakh two-wheeler owners, seven lakh car owners and eight lakh commercial vehicle owners.

“We receive around 1,75,000 fresh policies each month,” Eswaranatarajan claimed. However, he declined to share the number of products ICICI Lombard plans to come out in the near future.

The company targets new vehicles as well as renewals through dealers, garages and tie-ups with vehicle manufacturers. It has alliances with Hyundai, Ford, General Motors, Hero Honda and Eicher. ICICI Lombard had opened 120 offices last fiscal taking the tally to 340.



Source: The Hindu Business Line, PTI

RING IN NEW PENSION SCHEME

After winning the trust vote, finance minister P Chidambaram had said the government would push ahead with financial sector reforms. Presumably, this would include key economic legislation encompassing insurance and pensions. On the PFRDA Bill, the government has covered a lot of ground having incorporated some suggestions put forward by a parliamentary committee.

That should address the concerns of lawmakers. Yet, there are issues that must be addressed or at least debated before the legislation is approved. All subscribers to the New Pension Scheme, now mandatory for central government employees who joined service on or after January 1, 2004, have to reckon with a differential tax treatment. In the current tax regime, while contributions to the pensions scheme and earnings are tax exempt, the proceeds are taxed at the applicable personal income tax rate. In vogue in many other mature economies, this is also in line with the exempt exempt tax (EET) method advocated by an expert committee.
This may be a desirable approach. But it overlooks some facts. Comparable long-term social security schemes such as the Employees Provident Fund, Public Provident Fund and the General Provident Fund enjoy a beneficial tax treatment — contribution, earnings and maturity proceeds are tax exempt. It seems discriminatory as it is skewed in favour of the organised sector.

The NPS is designed to bring into its fold not just government staff but lakhs of workers including the self-employed. While providing retirement incomes to a large section of the population is the goal of the scheme, there is the promise of savings flows, which once the NPS gains traction, could fuel the capital needs of industry and infrastructure providers.

It is well known tax treatment drives the behaviour of investors and other financial product providers. In an environment where stocks held for just one year are exempt from long-term capital gains tax, it would be harsh to penalise those trying to build an egg nest. The government has two choices: ensure parity of tax treatment for all long-term social security schemes, or introduce EET across savings products.

Source: The Economic Times

EPF HAS TO EXPAND COVER FOR COUNTRY’S SOCIAL SECURITY; NO CHANGE SEEN IN INTEREST RATE

New Delhi: The employees’ provident fund, or EPF, a savings plan under which employees contribute 12% of their basic salary and the employer contributes an equal amount to a government-administered fund that is paid out either on retirement or disability of an employee, is restricted to establishments with 20 employees and more. Recently, the Union government proposed that the benefits of EPF be extended even to establishments employing 10 persons, and to all industries in the country.

According to the National Sample Survey Organisation, a government body that conducts social and economic surveys, 44.35 million enterprises employ 79.71 million workers in the so-called unorganized sector. In its existing form, as of March 2006, the EPF scheme extends to 441,000 establishments.

Mint spoke recently to A. Viswanathan, central provident fund commissioner of the Employees’ Provident Fund Organisation, or EPFO, on this and a range of issues associated with the administration of the fund. Edited excerpts:

Where does the current decision to expand EPF coverage to firms with 10 or more employees flow from?

It (the decision) is not a sudden one. It has been on the cards for a long time. The second National Commission on Labour (2004) said we have to give security to every individual. How do you do it? Instead of expanding coverage to firms with 10 or more, or five or more and so on, they asked us to extend social security to everyone. Today, luckily we are in a stage called demographic boom. But along with a boom we have a huge lurking liability. In 30-40 years all these youngsters will become old.

What is the income support they are going to have?

The family structure is not going to stay like this. Family support which has been the backbone of Indian society for so long will break up. Due to urbanization there is strain on the family structure. EPF has to expand its coverage, otherwise society will have a problem.

The recommendation (to expand coverage) was made six years ago. EPFO itself had made this recommendation in 2003. The same board had also approved this. But it came with a rider to ensure no difficulties are caused to the workers or management, because the smaller the establishment, you have to take a lot of care to reach them for the purpose of coverage, registration, enrolment and service delivery.

How do you do that?

When this recommendation was sent to the government, they decided that the time was not right. At this time, the unorganized sector workers’ Bill has come. The Bill takes care of establishments with up to nine workers.

So, establishments with 10-19 workers will be left out. So, we thought we must cover this so that the entire population comes under a certain sustainable social security model.
A number of employers were op posing this move.

Would you like to elaborate?

No one opposed it as such.
Employers’ representatives were also of the view that social security must be provided to all. Their fear is, smaller the establishment, the employer becomes the accountant, salesman, he is everything.

They were averse to adding one more administrative burden. Their concern was how to make things simpler, make it Web-enabled or something. It was more to do with processes, the process of registration, giving benefits, etc.

Will the interest rate (on EPF) be reduced to 8.25%?

The board has not taken any such decision; 8.5% can be easily sustained. Estimates are made at the start of the year based on certain assumptions. We always make a very conservative estimate on the interest rate so that we don’t make any overdraw. We would like to sustain 8.5%. In the year 2008-09, I have no means of increasing the interest rate. Maybe at the end of this year, I would be able to say.

There was a request in the CBT (central board of trustees) that the board members must meet the Prime Minister for enhancing the interest rate and to express their views on the same. You might be able to increase rates after March 2009? Even at 8.5%, you seem to have a shortfall of about Rs139 crore.

A clear picture will emerge only later. Maybe there will be no shortfall, because, interest rates have gone up now. All that has to be factored in. As per a calculation I made a couple of months ago, I might be able to maintain 8.4% without any shortfall. We might even get 1% extra. We normally fix the interest rate well before the beginning of the financial year so that any person leaving in the middle will also get a proper rate of interest. We have not been able to do it this year or the previous year also. But when we do the arithmetic later, maybe it will be possible to give a better rate. We may be able to give 8.5% without shortfall.

So 8.5% is a good rate of interest in your opinion?

(Laughs) Yes, I am giving 8.5%, which is tax-free. Secondly, in case the employer does not pay, I am underwriting the money. The big picture is pension. To get some assured money is the greatest security.

If a person is getting more by way of interest money in banks, why would they want to continue con tributing to EPF?

Two reasons. First is that contribution made to EPF is completely tax-exempt. If you put your money in a bank deposit, you are going to be taxed. Second, today the bank rate is high, but two-three years ago what was happening? People were withdrawing because bank rates were low.

In case you are making your own investments, there is an element of risk and administrative cost. EPF can spread its risks. So, there are many good reasons why EPF is good.

Are you thinking of changing the investment mix of your fund since given the current inflation trend, returns are not that great?

We are making investments as per the mandate given by the board and investment pattern approved by the government. It will not allow me to take any risk. It is their call and wisdom. The board has decided that most money will be in bonds, including those issued by the private sector. The board has refrained from investing in equity.

This is an election year, any pres sures to increase interest rate?

No, nothing of that sort.
Even if the board decides to give 15%, the government will act as a check as it is mandated to ensure that there is no overdrawal. There was a demand to set up an EPF-like fund for enabling the Un organized Sector Workers’ Social Security Bill. But the government rejected it.

Would you like to comment?

EPF was designed keeping in mind people are going to stay in one job all their life. That they were all stable persons. What you call permanent employees. But the world has changed. Labour practices have changed. We have to change along with times but we have not done it in a very efficient manner. Until we do that, keeping a track of a large number of people is creating tremendous pressure on us.

Is the pension fund slowly collapsing? What is being done about it?

Yes, pension fund is under certain strain. If the fund is closed today, then we will have to keep paying out current members until they die. So, actuaries are saying that in 60 years, if we close the fund now, we will have a shortfall of Rs22,000 crore. The crisis is not immediate. We have already initiated certain measures to reduce the strain, and we will continue to do it. Already, a panel set up by the labour ministry is reviewing this whole scheme to suggest measures to improve it.




Source: For Mint, Krishna Urthy Ramasubu

PENSION, BANKING REFORMS BILLS SOON

The Centre is contemplating to push forward the much needed reforms in the sensitive pension as well as banking sector by introducing the necessary legislations in the forthcoming Monsoon session of Parliament.

“Bills on appointing the regulatory authority to oversee management of pension funds and banking regulation like raising the voting rights of foreign banks in private sector banks are already pending in Parliament. We should be able to take them up in the forthcoming Monsoon Session,” Minister of State for Finance Pawan Kumar Bansal said here on Friday.

Further fine-tuning
The finance ministry is working on further fine-tuning of these pro-reform Bills, he indicated.

The Pension Fund Regulatory & Development Authority (PFRDA) Bill was introduced by the government in Parliament in 2005, to allow new pension fund managers - both public sector as well as private — to manage pensions contributed by the both state-owned and private enterprises. But due to persistent objections from the Left Parties the government could not push through the PFRDA Bill. Left Parties are totally opposed to private sector entry in the sensitive pension sector.The government had even promulgated an ordinance for appointing a Pension Funds Regulatory and Development Authority to oversee the pension sector. Currently the three state-owned entities—subsidiaries of SBI, LIC and UTI Asset Management Company—are managing the pension funds collected from the government employees.

Pension beneficiaries
The intended reform in pension sector seeks to allow private firms to handle this fund and invest the corpus in equity market to fetch better returns for the pension beneficiaries. As part of exercise to push through reforms in the banking sector the minister also indicated that the government would introduce the Banking Regulation (Amendment) Bill in the coming Monsoon session.The Bill proposes to allow foreign investors to have voting rights in banks in proportion with their equity holding, rather than being capped at 10 percent now. Though the Bill was vetted by the Parliamentary Standing Committee of Finance the government could not push through the Bill in the last Budget session in the face of strong opposition from the Left Parties.

Source: The Economic Times, Deccan Chronicle

LIC WALKS OUT OF CREDIT CARD VENTURE WITH GE


Mumbai: Life Insurance Corporation (LIC) will not partner with GE Money for its proposed foray into credit card business following huge loss reported by SBI Cards & Payment Services Private Ltd, in which the Indian arm of the US conglomerate has a 40 per cent stake, an LIC official said.

For the first time in its decade-long existence, SBI Cards has reported a net loss of Rs 150 crore for 2007-08 (April-March). “The experience of SBI Cards with GE Money was not encouraging. We also had experienced problems in the past with foreign players. We may go alone for the credit card venture,” the official said.

Though LIC may take some time to decide whether to go solo, a clutch of institutions are already queuing up to partner the insurance behemoth. “There are already four to five institutions that have shown interest in partnering us,” the official said without divulging further details.

In the proposed card venture, GE Money was to have 30 per cent stake and LIC 40 per cent. Corporation Bank, LIC Housing Finance and LIC Mutual Fund were supposed to have 5 per cent each and the remaining 15 per cent was scheduled for a private equity player.

If LIC goes solo, then the insurance firm will have to take the proposed stake of GE Money, thereby pushing up its holding in the venture to 70 per cent, the official said.
LIC’s decision to partner GE Money in the plastic money business had irked State Bank of India (SBI), industry officials said. SBI was not comfortable with the idea of GE Money partnering with LIC as it feared a conflict of interest.

LIC, on the other hand, went on record saying it does not have any problem with GE Money partnering it as well as SBI for the credit cards business. “We do not have a problem with GE Money’s presence,” Hemant Bhargava, chief executive officer-designate of the LIC’s card venture had told on April 10. However, after SBI announced an increase in bad assets from its credit card business in May, LIC started to rethink the deal, banking industry officials said.

As per earlier plans, LIC’s card venture was expected to start operations by the end of the current year, which now seems somewhat uncertain. SBI recently appointed Diwakar Gupta, who was the chief general manager of State Bank of Patiala, as the chief executive officer of SBI Cards. Earlier, a GE Money official held the post.



Source: Newswire18, Business Standard

LIC ACCUMULATES STAKE IN 22 SENSEX COS



Mumbai: Life Insurance Corporation of India (LIC) appears to have made some value buying in the last quarter, when many blue chips lost heavily from bear hammering.
The Government-owned insurance company, which is a major player in the equity market, increased its stake in the Sensex stocks during April-June quarter

LIC raised its stake in 22 Sensex companies, during the June quarter, according to a study on the Sensex companies’ public shareholding of more than 1 per cent.

Prunes stake
However, it pruned or maintained its stake in the IT software majors during the same period; software companies’ share prices outperformed the Sensex during the last quarter. On a quarter-to-quarter basis, during the same period, the Sensex fell 14 per cent, to 13,461 on June 30 from 15,644 at March end.

It reduced its stake in Infosys from 3.72 per cent to 3.62 per cent and in Satyam Computer it brought down its stake from 2.71 per cent to 2.51 per cent. In TCS, while the LIC stake remains unchanged at 2.21 per cent, Wipro’s shareholding pattern for June quarter has not been updated.

Its stake in Housing Development and Finance Company also remains unchanged at 1.43 per cent. In Ranbaxy Laboratories, LIC reduced its stake from 15.84 per cent to 15.01 per cent.

ICICI Pru too hikes
The private sector ICICI Prudential Life Insurance has also been strengthening its stake in the Sensex companies. In the June quarter, ICICI Prudential raised its stake in Infosys to more than 1 per cent during the quarter, whereas in the previous quarter, it did not figure in the one per cent plus shareholder list.

Among other companies in which ICICI Prudential Life Insurance has raised stake in the June quarter are ACC (from 1.10 per cent to 1.13 per cent), HDFC Bank (more than 1 per cent to 2.65 per cent), Satyam Computer (from 2.83 per cent to 3.28 per cent), Mahindra & Mahindra (from 3.18 per cent to 3.42 per cent). Meanwhile, in same quarter, ICICI Prudential reduced its stake in capital goods major Larsen & Toubro (from 1.38 per cent to 1.33 per cent) and in BHEL it reduced (from 1.45 per cent to 1.17 per cent).

Barring UTI, most of the domestic mutual funds don’t figure among the public shareholders having more than one per cent stake in the Sensex companies. The FIIs during the same period showed mixed behaviour. Many FIIs raised their stake in Sensex companies, but those who have reduced their stake or made a complete exit outnumber the former.

In DLF and NTPC neither LIC nor any other public shareholder had 1 per cent or more stake as at the end of the last quarter.




Source: The Hindu Business Line

Sunday, July 27, 2008

HSBC, ICICI PRUDENTIAL SHOULD MANAGE EPFO FUNDS WITH SBI: FIC

New Delhi: More than two years after the Employees Provident Fund Organisation (EPFO) Board’s finance and investment committee (FIC) called for replacing State Bank of India’s (SBI) monopoly over its fund management with a regime of multiple fund managers, the FIC, on Thursday decided to recommend to the board the names of HSBC, ICICI Prudential Asset Management Company and SBI as the new fund managers for EPFO.

In yet another sign of the Right aligning with the Left, BM Rai of the BJP-backed Bharatiya Mazdoor Sangh (BMS) is learnt to have echoed the views recently expressed by his CITU peer W R Varadarajan and called for the fund managers to be picked from the public sector alone. The Congress’ trade union INTUC president G Sanjeeva Reddy and Employers’ Federation’s Sharad Patil didn’t attend the meeting.

With the government keen to press ahead with the long-pending reform move, the committee cleared the three ‘selected’ names with the backing of employer representatives even as employee unions called for more discussions over the matter in the board meeting. The minister for labour and employment, Oscar Fernandes, will chair a meeting of the EPFO’s Central board of trustees summoned on Tuesday, July 29, to finalise the fund managers’ selection and initiate their appointment process.

Employee union reps are expected to oppose the government in the implementation of the decision. “The board may have to take a decision by majority vote rather than consensus,” a trustee told FE . Of the 21 bidders that had expressed interest in managing the corpus of EPFO, the second largest non-banking financial institution in the country after the Life Insurance Corporation of India , 10 players had been shortlisted for financial bids which were opened on Tuesday.

The surprising bids by HDFC AMC and Birla Sun Life AMC, to manage EPFO’s monies at zero fees, threw the EPFO in a tizzy. A legal opinion had to be sought on whether a legally binding contract can be entered into by the EPFO with a bidder who quoted a ‘Nil’ financial bid. With its legal advisor pointing out that no valid contract can be signed if there is ‘no consideration’, HDFC and Birla Sun Life’s bids were rejected.

With those bids out of the way, HSBC AMC, ICICI Prudential AMC, SBI and Reliance Capital AMC had the lowest financial bids. With SBI and Reliance both bidding fees of just 0.01% of assets, SBI... was selected as it had a better score on technical bids’ evaluation (81 out of 100).

Reliance Capital’s technical bid evaluation score was 77 out of 100. It’s another matter that the entire exercie of replacing SBI as EPFO’s sole fund manager was taken up due to the growing realization that it had delivered sub-optimal returns in recent years, idled EPFO funds and often invested them in its own term deposits. Board members also point out that SBI has now quoted fees which are much lower than what it currently charges EPFO.
Source: The Financial Express

HOPE ON PENSION REFORMS

Between 15 million and 20 million of India's 400-million strong work force have a retirement savings plan. The average corpus at the time of retirement is a paltry Rs 52,000 per individual, and only a small proportion of those covered have contributed long enough to also be entitled to the maximum life-long pension of Rs 3,250 per month.

Yet, according to the annual survey by the Invest India Foundation, around 80 million workers are keen on contributing to a retirement fund, acutely aware that the age-old child-supports-parents model is breaking down. So what keeps them from contributing? Ironically, it is the very organisation that has monopoly rights over the country's pension business, the Employees Provident Fund Organisation (EPFO).

Ever since the era of high interest rates got over in the 1990s and private mutual funds started delivering good results, the EPFO has consistently been shown up as a poor performer in terms of returns offered; its service record is so poor that it is still not able to deliver a unique customer ID that subscribers can use all their life — as a result, many users have 2-3 accounts, which, apart from being difficult to manage, also ensures that workers lose out on pension coverage since you have to contribute for at least 10 years to be eligible for the monthly pension benefits.

There are other problems such as the rising gap, already over Rs 25,000 crore, in the pension scheme but this is a problem for the government, which has to make it good, and not for the pensioners.

It was to fix this that, in 2005, the government sent the Pension Fund Regulatory and Development Authority (PFRDA) Bill to Parliament, to allow new pension fund managers, both public sector as well as private, to compete with the EPFO, with the PFRDA acting as an impartial regulator. The Bill languished because the Left parties argued that private fund managers were not to be trusted.

This changed dramatically when, in April, the EPFO itself invited bids from various fund managers to manage the fresh deposits of around Rs 9,000 crore it gets each year — the current corpus of Rs 150,000 crore is managed solely by State Bank of India. Suddenly the PFRDA Bill got a new lease of life: if the EPFO, dominated by Left and other unions, could trust private fund managers, why couldn't the same apply to the rest of the country? While some prominent members of the EPFO's Central Board of Trustees (CBT) are against the idea, the EPFO management has shortlisted seven private asset management companies and plans to open their financial bids next week, after which the CBT will take a call on whether to go ahead. India's plans to allow new players in the pension market have thus made a significant advance. It would be a pity if the labour unions were allowed to snuff out this reform.

Source: Business Standard

BIG BOYS FOR BIG FUND WILL BE NAMED NEXT WEEK

New Delhi: The list of private sector companies to manage Rs 2,40,000-crore Employees Provident Fund (EPF) is likely to be cleared at the upcoming Central Board of Trustees meeting, scheduled to be held next week.

The board, chaired by labour and employment minister Oscar Fernandes, will decide the final names from those who cleared the two-step process of technical and financial bids. The board — with representatives from ten employees’ organisations, ten employers’ organisations, central and state governments, apart from EPFO Central Provident Fund Commissioner — has to decide on a minimum of three fund managers to handle EPF corpus.

Ten firms had cleared technical bids, including Reliance, HDFC, ICICI Prudential, Templeton, HSBC, the Tatas, the UTI subsidiary, SBI and PNB. Of these ten, a few have already been shortlisted on the basis of clearing financial bids, a source told The Indian Express.

Refusing to divulge the names of these firms, the source said that the final list would be based on the board’s stringent evaluation of firms in the fray. The EPF board’s finance and investment committee met and pruned the list of ten fund managers.

Till now, SBI was solely managing the entire EPF corpus. With this move, its monopoly will end. The government last year decided to diversify the funds and appoint private sector companies after it expressed its unhappiness with SBI’s fund management. It was dissatisfied with sub-optimal investments by SBI and held it responsible for lower returns on its large portfolio.
Source: The Indian Express

FARMERS ADVISED TO GET INSURANCE COVER

Nagapattinam: Farmers in the Cauvery delta region of Thanjavur, Nagapattinam and Tiruvarur districts should get proper insurance cover for the current kuruvai paddy crop in time before the expiry date with the dwindling water resources for cultivation this year.
All who have availed loans or not would be insulated from any adverse impact if they get insurance cover in time, said S. Ranganathan, a progressive farmer and General Secretary of the Cauvery Delta Farmers’ Welfare Association, on Thursday.

Decreasing level
Mr. Ranganathan told The Hindu that the water level in the Mettur reservoir had come down to about 60 feet against the full tank level of 120 feet and the water available in the dam would be suffice only for 10 days.

Monsoon truant
The southwest monsoon is playing truant and is still weak in the catchment areas.
This is a serious cause of worry for the farmers who have ventured in a big way to take up the short-term kuruvai paddy cultivation.

Rains in some parts
He pointed out that it was gratifying that at least some part of Tamil Nadu was getting good rains and advised the farmers to get proper insurance cover for the kuruvai crop.



Source: The Hindu

‘MERGE INSURANCE COMPANIES’

Salem: Salem unit of Coimbatore Region General Insurance Employees’ Association urged the Union government to initiate immediate steps to merge the four public sector general insurance companies.

Members of the association adopted a resolution to this effect at the annual general body meeting of the unit held here recently. In another resolution, members appealed to the government to withdraw the compulsory transfer policy and fill up all the vacancies immediately. T. Ganapathi was elected president of the unit during the meeting. M. Karupaiah was elected as Secretary and K. Mailvelu as Treasurer.

Source: The Hindu

INSURERS WAIT FOR FDI HIKE

New Delhi: Max New York Life Insurance chairman, Mr Analjit Singh, said on Thursday that passing of the insurance bill, which seeks to raise the FDI limit, will be a positive development for the industry.

The finance minister, Mr P. Chidambaram had said on Wednesday that centre will try to push the reform process forward and will try to pass the insurance bill. The bill proposes to raise the foreign investment ceiling for insurers to 49 per cent from 26 per cent.

"There are many second tier insurance companies in which the Indian partners are not so active as the foreign partners. If the FDI limit is increased, the foreign companies will make these firms more effective by increasing their stake," Mr Singh said after launching a new life insurance scheme ‘Max Vijay’ for the rural India. He said that there are various international insurance companies which are waiting for the bill to get pass before coming to India. "This will increase the competition which will be a good thing," said Mr Singh.

He said that there is a huge opportunity for growth as the penetration of the insurance companies is very low. "We want the insurance bill to get passed in this tenure of the government. We have been waiting for this from last four to five years," said Mr Singh.

Source: The Pioneer, Asian Age

`WE HAVE NO LISTING PLANS FOR NOW`: ANALJIT SINGH, CHAIRMAN, MNYL

New Delhi: Even as competition in the insurance sector is on the rise, Max New York Life Insurance Co, one of the top five private life insurance firms in India, has announced plans to tap the financially weaker segments of the country through a new insurance and savings scheme called Max Vijay. On the sidelines of the launch of Max Vijay, Analjit Singh, chairman of Max India, spoke to Joe C Mathew and Prashant Sahu about the company's future plans. Excerpts:

Will the government's proposed plans to raise the foreign direct investment (FDI) limit from 26 per cent to 49 per cent impact Max India?

It will allow New York Life to exercise an option to increase its equity stake in Max New York Life Insurance Co. But there will not be any impact on the joint venture business. We have already announced aggressive growth plans. The move will not have any impact on the five or six large insurance companies in India.

However, for second-tier life insurance firms, where the domestic partners are not very active, this might lead to more activity and aggression in the business. There must be some other foreign insurance companies who are waiting for this to happen to announce their plans for India. In any case, competition will increase and size of the business will grow. Overall, it is a positive for the industry.

How important is the life insurance business for Max India?

Life insurance business accounts for almost 75 per cent of Max India's revenues. It will continue to be our major revenue source. We want to be a $5-billion company by 2011-12, and two-thirds of that should come from this business. We are targeting to achieve revenue in excess of $1.7 billion by the end of March 2009.

How do you differentiate yourself from other private life insurance players?

Unlike others, Max is a pure life insurance player. For all the other existing players, the life insurance business is one among many things. For me, Max India being just a holding company, life insurance is the biggest business. You have also announced a joint venture with UK's leading insurance player BUPA for the health insurance sector. How do you intend to go forward?

There are only two or three standalone health insurance players, who have also just started. So it is too early to comment on their performance. Max Bupa Health Insurance will have a very clear business plan. Others might have announced their plans first. But it is not enough to announce it and fire. You have to aim. We are aiming (firming up business plans) for 17 months so that when we fire, we go.

How is your healthcare business?

We have big growth plans for Max Healthcare. Four new hospitals, three in Delhi and one elsewhere in the North are coming up. We are growing in the super-specialty area and will be the biggest private player that provides comprehensive healthcare at a single hospital. There were reports about Max India planning to list of each of its business arms as separate entities in the stock exchanges. Your comments.

The report was incorrect. I had said that we will list them at some point in time. It could be two years or 12 years. Right now we are not listing. I guarantee you that we are not listing them at least for the next few years.

What about your speciality plastic business? Any plans to divest unrelated segments as your focus is now on healthcare service, and the life and non-life insurance segments?

I agree that it is an odd ball in our business mix. But it is a very successful business. It is going on very well on its own. Let it continue.



Source: Business Standard

MAX NEW YORK LIFE LAUNCHES INSURANCE-CUM-SAVINGS PRODUCT

New Delhi: Max New York Life Insurance on Thursday launched “Max Vijay”, an insurance-cum-savings product aimed at the underserved segment of society. Announcing the launch, the company’s Chairman, Mr Analjit Singh, said “Max Vijay empowers millions of Indians, who may not be a part of the economic growth scenario that the country is witnessing, to participate in this revolution and realise their dreams. The business model leverages innovation at every step — be it product design, technology, distribution or service delivery — to ensure a comprehensive offering for the common man.”

Max Vijay has been designed keeping in mind the lifestyle, income patterns and needs of the rural and semi-urban population. It empowers millions of Indians to benefit from the economic boom in financial services that was hitherto denied to them, company officials said.

The minimum premium payable under the product will be Rs 1,000 and the policy will not lapse as long as there is sufficient value in the account. The company has tied-up with IBM to provide end-to-end technology backbone for fulfilment. Apart from this, they will facilitate the handheld terminal, which enables data transfer to the back-end through GPRS and hence facilitates on-the-spot policy receipt

Meanwhile, Mr Singh told newspersons that it would be business as usual for Max New York Life even though there are indications of the Government pushing for legislative changes to increase the sectoral cap on insurance from 26 per cent to 49 per cent. The company was not looking at a listing for the moment, he said, and added that the joint venture partners have committed to raise the paid-up capital from Rs 1,300 crore to about Rs 3,600 crore in the next two years.



Source: The Hindu Business Line

SBI LIFE MAKES LOSS IN Q1 ON RS 150-CR PROVISIONS

Mumbai: SBI Life Insurance Company Ltd has made provisions of Rs 150 crore for mark to market losses on its investment portfolio. The provisions have meant that the company has made a net loss in the first quarter.

Mr U.S. Roy, Managing Director and CEO, said, “An IRDA directive in March had asked companies to make provisions on diminution in assets but there has been no formula prescribed. We are following the method used by banks and are taking a conservative approach by making such prudential provisions,” he said.

The company, which has been profitable in the past two years has not disclosed the net loss made in the first quarter. SBI Life’s assets under management stand at Rs 11,727 crore. Mr Roy said that around Rs 4,000 crore was invested in equity and the depreciation was seen mainly in this portfolio.

SBI Life has, however, shown a sharp growth in new business premium. The new business annualised premium equivalent (APE), that takes single premium income at 10 per cent, has grown by 241 per cent to Rs 972 crore.

The contribution of ULIPs to the company’s portfolio has dropped to 54 per cent, from 70 per cent in March. Mr Roy said the company has been strategically pushing traditional products.



Source: The Hindu Business Line

INSURANCE FIRM ASKED TO PAY COMPENSATION

Hyderabad: The A.P. State Consumer Disputes Redressal Commission has rejected the repudiation of a policy-holder’s claim by a health insurance company and ordered it to pay compensation.

The commission disposed of the appeal by Royal Sundaram Alliance Insurance Company Ltd. and upheld the order by the Krishna District Consumer Forum towards reimbursement of the medical expenses incurred by B. Ramanadham, a policy holder. Mr. Ramanadham, a resident of Vijayawada, had taken Health Shield Insurance Policy and Hospital Cash Insurance Policy from Royal Sundaram Alliance.

Under these policies, he was entitled to full reimbursement of treatment expenses up to Rs.1 lakh apart from Rs.1,000 a day as inpatient treatment charges. Mr. Ramanadham visited the NRI General Hospital at Chinakakani in Guntur district in June 2007 with the complaint of a backache. He was admitted to inpatient ward of the hospital in August 2007 and discharged after 10 days.

Mr. Ramanadham filed a claim with the company for Rs. 10,525 towards daily treatment charges and Rs.14,725 for treatment expenses. The company agreed to pay only daily treatment charges and rejected the claim for treatment expenses saying that his backache was a pre-existing ailment. The policy holder challenged the company’s decision in the Krishna District Consumer Forum.

The District Forum gave a ruling in favour of Mr. Ramanadham in April by considering backache as a natural ache and not pre-existing aliment. Royal Sundaram opposed the Forum’s ruling and appealed in the State Forum for its reversal. However, the State Forum upheld the directive of the lower forum on July 7. It ordered the company to pay Rs.10,525 and Rs.14,725 respectively for inpatient and treatment charges with 9 per cent annual interest and costs of Rs.1,000 to the policy-holder.

Source: The Hindu

Saturday, July 26, 2008

CHAMBER FOR NATIONAL CLIMATE CHANGE INSURANCE FUND

Kolkata: The Indian Chamber of Commerce is in favour of a national climate change insurance fund, with a cap on paid losses. Releasing a report entitled ‘Business Risks and Opportunities of Climate Change’ to newspersons here recently, Mr Vishambharan Saran, Senior Vice-President, ICC, said, “The insurance companies, for instance, could be asked to give discount on premiums for covering companies, which adopt eco-friendly projects.”

While there were several insurance products available in the market providing coverage to physical damage caused by climate change, hardly any product was available to cover business risks of climate change.

Source: The Hindu Business Line

GOVT ALL SET TO USHER IN FINANCIAL REFORMSThe

New Delhi: With the Left off its back, the government is all set to initiate major reforms, especially in the financial sector, are expected in the coming months. Labour reforms too are long awaited, but the government knows that this is much more politically fraught, and is unlikely to do anything on which there is no consensus among UPA allies. Official sources said the Prime Minister would soon be taking up the issue of reforms with Samajwadi Party. "Our aim will be to build a consensus on these reforms with Samajwadi leaders and initiate steps to usher them in before the Lok Sabha polls next year," said a source. Singh believes that valuable time has been lost because of the Left's "cussedness" on reforms. Singh also believes that a dose of meaningful reforms would also be an antidote to the general sluggish sentiments and may, in fact, help in tackling inflation and other aam admi issues.

Financial sector reforms, covering insurance, banking and pensions, could spur investments and add as much as 1.5% of the country's growth. That, in turn, would give the government the opportunity to address issues of welfare and distress. The main reform in insurance is to raise the foreign direct investment cap from 26% to 49%. In fact, Finance Minister P Chidambaram had proposed this FDI hike, but in light of the Left's total opposition to his proposal, he had to backtrack. But once the cap is relaxed, a lot more foreign money is expected to flow in and help to expand the insurance sector. The Indian pensions sector is totally unreformed. The government wishes to create a statutory regulator for the sector and had promulgated an ordinance for appointing a Pension Funds Regulations and Development Authority. But once again, agreement with the Left proved elusive, and the ordinance lapsed. The appointment of a regulator will set the scene for breaking the monopoly of the Employees Provident Fund Organisation (EPFO), with which both the government and the private sector have to park their pension money currently. The regulator can permit new pension funds and create the framework for them to operate in an open and transparent environment. In turn, pension funds can vie for government or private sector pension money, offer advice on its best utilization and also give companies and individuals options on how best they think their money can be deployed that is, how much in fully secured instruments and how much in the market where returns could be higher but so would be the risk. Finally, the banking sector reforms that have been hanging fire entail allowing the government's stake in public sector banks to come down below 50% and raising the current 1% cap on voting rights that applies to all other shareholders in state-owned banks. Reformers believe that this will bring in megabucks and enhance banks' capital adequacy ratio.



Source: Economic Times

Thursday, July 24, 2008

JAPANESE, AUSSIE PENSION FUNDS LOOK TO INDIA

With waning interest in the US and Europe, pension funds in Japan and Australia are eyeing investments in India, say industry sources. Japanese funds like Japan Government Pension Investment and Pension fund Association, with an overexposure in China, would want to invest in growth-oriented sectors of the Indian economy.

A possibility, according to experts, is that these funds would register as FIIs in India, or take the asset management route to enter the country. The $935.5-billion Japan Government Pension Investment is the world’s largest pension fund. “In Japan, the interest rate on savings in nil,” says Seiji Ota, a partner with BMR Associates. “Therefore, there is no point in keeping money with banks there. So pension funds have become attractive,” he says. He is quick to add that Japanese pension funds are generally conservative, unlike the sovereign funds of the Middle East.

“If the Japanese pension funds do come in, then it demonstrates the conviction these funds have in the Indian growth story. Of course, they have been attracted to China, but maybe they have sensed that it’s a bubble that could burst,” Ota adds.

Agrees Rohit Kapur, head-corporate finance, KPMG India, “These funds could be looking at the Indian market as an alternative. The returns that these funds could get in Japan are quite small.”

Same is the case with superannuation funds from Australia, including Westscheme, Statewide Superannuation Trust, SAS Trustee and Public Officers Superannuation Fund.
In Australia, every employee puts 10% earnings into superannuation funds. A lot of that now gets captured by banks like Macquarie, which is a huge investor in infrastructure in various parts of the world.

Most investments by such funds used to be in safe havens of Europe or US. With mortgage funds running into trouble, investors would now want to look at other alternatives.

Source: The Financial Express

INDIA'S PENSION CHIEF WANTS SPEEDY REFORMS

New Delhi: India's pension fund regulator said on Wednesday he would urge the government, fresh from victory in a parliamentary confidence vote, to push forward with legislation to allow foreign investment in the sector.

At present, three state-run funds and a handful of domestic insurance companies offer pension schemes to Indian employees, but the returns are low as they mostly invest in debt.

"We have been waiting for it (reforms). We will take it up with the government," D. Swarup, chairman of Pension Fund Regulatory and Development Authority told Reuters.
"I do definitely expect the pension bill to be passed this year. Otherwise, the bill will lapse and the entire process has to be started afresh," he said.

A bill to reform the pension sector was first introduced in parliament in 2005 as a cash-strapped government sought ways to reduce its expenditure and ensure higher returns for employees.

But the move ran into stiff opposition from communist parties which provided the government with a majority. The left withdrew support last month over a controversial nuclear energy deal with the United States, triggering Tuesday's confidence vote which the government won.

After the vote Finance Minister Palaniappan Chidambaram said the result showed the Congress party-led ruling coalition had majority support for reforms and would work with other parties to carry forward pending reforms.

The proposed pensions legislation would allow foreign funds to buy stakes of up to 26 percent in pension joint ventures with Indian firms, same as that for insurance firms, Swarup said.

"The FDI limit in pensions could be raised to 49 percent once it is raised in the insurance sector," he added. New pension funds would be allowed to invest up to 50 percent of subscribers' money in equity or equity-linked mutual fund schemes, he said.

Source: The Hindu Business Line, The Financial Express, Reuteurs

HEALTH INSURANCE FOR TSUNAMI-HIT

Chennai: Families across the State, who were affected by the tsunami, have been provided medical and accident insurance by the United India Insurance Company. Of this, about 6,500 families are in the city.

Addressing presspersons here recently, the company’s chairman and managing director G.Srinivasan said that about 16,000 families across the State have benefited from the insurance cover over the past one year. The Tsunami Jan Bhima Yojana was launched in March 2007 in association with the Central Government.

Disbursed
Insurance claims worth Rs.7.12 crore have been disbursed so far and the cost has been sponsored by Prime Minister’s National Relief Fund. On the benefits, he said the tsunami affected families have been provided a photo identity card which they could use to avail of medical facilities.

Each family is provided with an insurance cover up to Rs.30,000 a year.
About 180 hospitals in the State have been enlisted based on the quality of healthcare and their location. The yearly premium of Rs.800 a family is provided by the Central Government, Mr.Srinivasan said.

A total of three lakh families have been provided the insurance cover in Tamil Nadu, including those in Tiruvallur, Nagapattinam and Cuddalore districts, and in Kerala.
It would soon be expanded to Andhra Pradesh and Puducherry, he added.

Source: The Hindu

INSURANCE CLAIMS HUB

Kochi: The New India Assurance Company is setting up a centralised claims hub at Ernakulam shortly in order to expedite claim settlement. The service centre, being a specialised office, will be able to settle claims faster as a single-window operations. All offices operating in the city will be attached to it, Mr Girish Raj, Chief Regional Manager, Kerala region said. To start with, the service centres will deal with motor OD claims and later other claims will be added.

Source: The Hindu Business Line

STAR HEALTH POSTS RS 3.16-CR PROFIT IN FIRST YEAR

Chennai: Star Health and Allied Insurance has turned in a net profit of Rs 3.16 crore for the year 2007-08, its first full year of operations. The company’s Chairman and Managing Director, Mr V. Jagannathan, termed the achievement as unprecedented in the industry.

The company collected premium of Rs 168 crore, compared with Rs 22 crore in 2006-07, in which year, the company operated only ten months. Mr Jagannathan said that Star Health had fixed for itself a target of Rs 400 crore of premium for the current year. Half this amount has already been achieved, he said.

The company has been chosen by the Andhra Pradesh Government as the insurer for covering 6.55 crore of ‘below poverty line’ people in the State. The company received premium of about Rs 70 crore from the Andhra Pradesh Government.

In 2007-08, Star Health had made an investment profit of Rs 9.2 crore. The company did not make any underwriting profit. However, Mr Jagannathan expects the company to make profits on both investments as well as underwriting operations in the current year.

At a press conference here today, Mr Jagannathan estimated that investment profit for the current year would be about Rs 14 crore.

Outpatient care
Star Health introduced in Tamil Nadu a policy which would pay doctors’ fees on behalf of the policyholders. It sold about 3,200 policies — the only one of its kind in the country — and the claims are less than half the premium.

The company intends to extend the policy across the country. The premium is different for different cities. In Tamil Nadu, it is Rs 350 per family — the policy floats on all the members of the family. In Delhi, it would be Rs 1,000 and Rs 500 in Bangalore.

The company has also introduced a ‘super surplus’ policy, which covers hospitalisation expenses of more than Rs 3 lakh. For example, if a policyholder spends Rs 4 lakh, Star Health will bear Rs 1 lakh. The premium is Rs 3,000 for coverage of Rs 7 lakh over Rs 3 lakh and Rs 4,000 for Rs 10 lakh over Rs 3 lakh.

Source: The Hindu Business Line

‘SHORT-TERM PROFITABILITY OF GENERAL INSURANCE FIRMS COULD BE HIT’

Mumbai: While the short-term profitability of general insurance firms in India could be affected by the current situation in the industry, the outlook for these firms is stable on account of steady fundamental credit conditions for the next 12-18 months, says a joint report by Moody’s Investor Services and ICRA.

Pressure on the premium rates due to intense competition, higher reinsurance costs and falling premium income could adversely affect short-term profitability of the general insurance firms, says the report.

The greater reliance of the insurers on their investment portfolios to generate income could expose them to the volatility of the financial markets. The report also stresses on the need for raising more capital for unconstrained growth by private insurers, as reliance on reinsurance for capital relief is not always viable. It also stresses on the need for ensuring greater transparency and the need for more trained insurance professionals and technicians.

However, highlighting the positives, the report says that rising income levels, low penetration levels for most consumer products, availability of financing and changes in lifestyle and higher risk awareness would sustain consumer demand for the products provided by the general insurance providers.

The intense competition brought about by deregulation could encourage the insurance providers to innovate in the areas of underwriting, marketing, policyholder servicing and record keeping.

Answering queries about the impact of relaxation of foreign investment limits in the insurance sector, Mr Subrata Ray, Head-Corporate Sector Ratings, ICRA, said that increasing the limit to 49 per cent would lead to increased capital inflows into the sector, which could be beneficial in the long run.

But it would also mean increased competition, which might adversely affect the position of the fringe players. There are 14 players in the general insurance market, of which eight players enjoy a market share of 90 per cent, he added.

Source: The Hindu Business Line

‘PVT SECTOR INSURANCE PLAYERS TO CAPTURE HIGHER MKT SHARE’

‘Private general insurance players will continue to capture market share at the expense of public enterprises its a mix of aggressive distribution and service. Having penetrated the corporate segment in the past, most private insurers now seek to grow their retail books, says a report on Moody’s -ICRA global insurance.

Furthermore, the number of private insurers is expected to grow as various foreign companies have announced intentions to establish joint ventures. Given the low level of penetration in some segments, this trend towards foreign participation is likely to continue, informed the report.

According to the report, rate deductions in the recently de-tariffed corporate portfolio (fire & engineering) will impact premium growth, but this outcome will be offset by greater sales of existing and new products.

The formation of a third-party motor pool, where all general insurers are required to participate based on the size of their overall market shares, will reduce the underwriting burden on public entities. The claim ratio for the segment is likely to improve in the medium term as premium rates for the third party motor pool have also climbed.

Although, public entities have sustained consistent underwriting losses on some product lines, in particular for third-party motor business, their investment income and gains have more than offset their underwriting losses and helped them achieve solvency margins.

On challenges for the domestic general insurance industry the report said premium rates will remain under pressure due to intense competition on the more profitable lines. Falling premium income - without a corresponding reduction in claims - is likely to drive down profits.

Reinsurance is likely to cost more as treaty reinsurers reduce ceding commissions to compensate for the lower rates following deregulation. Public and private sector insurers’ greater reliance on their investment portfolios to generate sufficient income and gains for net profits would subject them to the volatility of the financial markets.

Source: The Financial Express