Max Inda soars on good Q1 results

Mumbai: Max India rose 9.77 per cent to Rs 170.25 after posting a 257.2 per cent year-on-year (YoY) jump in net profit to Rs 13.61 crore in Q1 FY09. The net sales for the quarter increased 89.6 per cent YoY to Rs 91.52 crore. The company announced the results after market hours on July 18 (Friday).

The stock gained further momentum on reports that the company has increased the ‘economic interest’ in its life insurance joint venture company, Max New York Life, from 50 per cent to 74 per cent. New York Life Insurance holds the remaining 26 per cent.

Source: Business Standard

HOUSEHOLDER POLICY PREMIUMS FALL 35-50%

Mumbai: The next time you buy a householder's insurance policy, you could be paying premiums that are 35 to 50 per cent lower. This is the result of the de-tariffing or lifting of price controls on insurance policies from January this year.

Thanks to the growing competition, the four public sector insurers, which account for over one-third of the market, are working hard to retain customers and win new ones by halving premiums for customers with a good claim record.

The dozen private non-life insurers have, however, cut premiums only 10 to 15 per cent for individuals and housing societies.

"The discount on a householder's insurance policy is more than 35 per cent," said V Ramasaamy, chairman and managing director of National Insurance, India's second largest general insurance company.
An official of Delhi-headquartered Oriental Insurance added that in addition to an annual policy, it is offering a four-year householder's policy.

Oriental Insurance's new policies are a case in point. The insurer is offering a 25 per cent discount on the basic policy plus an in-built discount of around 7.5 per cent, if you buy the policy for more than two years.

There is also a loyalty discount of 5 per cent in the first year, 10 per cent in the second year and 15 per cent from the third year on, provided there are no claims. Oriental offers a further discount of 10 to 15 per cent if you choose more than four sections.

Private sector companies like Bajaj Allianz and ICICI Lombard claim that reducing the premiums by more than 10 or 15 per cent is difficult.

Said T A Ramalingam, head of underwriting, Bajaj Allianz Non-Life: "Householder's policy is profitable for the public sector so it can be aggressive on pricing. We cannot do so because our risk perception of this business is different."

Source: Business Standard

HEALTH INSURANCE FOR ARTISANS

New Delhi: The government on Monday day said about 40 lakh artisans would be provided health insurance coverage under the Rajiv Gandhi Shilpi Swasthya Bima Yojna over a period of five years. Under the scheme, there is a provision of medical expenses being reimbursed to the beneficiaries, subject to an annual limit of Rs 15,000 per family. This was announced by ShankarSingh Vaghela, textiles minister.

Source: PTI, The Tribune, Hindustan Times,

EPF MAY ATTRACT MORE INTEREST THIS YEAR

New Delhi: Subscribers to the Employees Provident Fund (EPF) may earn at least a marginally higher payout for 2008-09 than the 8.5% they received in 2006-07 and 2007-08, but only if do not withdraw their funds mid-year.

Interest yields on deposits have moved up to 9-9.5% of late, but the government has continued to borrow from the EPF’s investments at 8.5%. “Fresh investments are likely to attract a higher interest rate. But the actual increase in earnings, which is likely to be only marginally higher, will only be computed at the end of the year before it shows up on subscriber payout,” sources told ET.

Earlier this year, the EPFO formalised the norm for paying last year’s interest rates to subscribers on mid-year withdrawals, in the event that the current year’s payout rate had not yet been approved by the Central Board of Trustees (CBT) and declared by the government.

In earlier years, while this was the normal practice followed — irrespective of whether the interest payout rate finally declared for the fiscal was higher or lower, it was not official practice. In the event, it could be challenged by subscribers who received a lower interest rate for mid-year withdrawals against a higher rate declared later for the running fiscal.

Current estimates of EPFO earnings during 2008-09 are pegged at around Rs 10,552 crore. If it has to fork out even 8.5% interest to its about four crore subscribers this year, the EPFO management estimates a deficit of Rs 139 crore. But the calculations were made with 8.5% yield on investments as the basis. At 8.5% interest yield, the returns are currently nil. In 2007-08, returns on investments made by the sole fund manager SBI only allowed 8.25% interest payout at a deficit of Rs 263.78 crore.

But any increase in yield on investments this year will only be marginal since they will not show up in a good chunk of EPF’s investments. A substantial portion (Rs 53,570 crore) of the EPF corpus of over Rs 1.55 lakh crore (as on March 31, 2007 at the face value excluding the balance lying in the public account) is invested in the Special Deposit Scheme (SDS), and earns an interest yield of only 8%. The interest rate for SDS deposits has stayed frozen since 2003 despite several demands from the EPF’s trustees and political pressure to hike the interest rate.

Source: Mumbai Mirror, The Economic Times

7 PVT FIRMS ON LIST TO MANAGE PF CORPUS

New Delhi: Amid strong opposition from trade unions, the Employees Provident Fund Organisation (EPFO) has shortlisted seven private sector companies to manage its large corpus of Rs 2,40,000 crore. They include Reliance, HDFC, ICICI Prudential, Templeton, HSBC and the Tatas.

An UTI subsidiary, State Bank of India and Punjab National Bank are the only public sector entities keen on the provident fund business against the minimum of three slots for the fund managers. "If we limit the business to the PSU players, where will the competition come from," asked an official.

Ten firms have cleared the technical bids, while the financial bids would be opened next week, he said. The Central Board of Trustees (CBT) would take the final call notwithstanding opposition from the trade unions.

The entire EPFO corpus is presently being managed by SBI. On top of Rs 2,40,000 crore, an incremental deposit of Rs 25,000 crore comes year. According to estimates, 70-75 per cent of EPFO's deposits are invested in the Special Deposit Schemes (SDS) of government, earning an interest of 8 per cent since 2002.

The estimated earnings of EPFO during 2008-09 would be about Rs 10,552 crore. For maintaining 8.5 per cent interest rate for this financial year as well, the EPFO management would have to make up a deficit of Rs 139 crore.

Source: PTI, Business Standard, The Times of India, The Statesman

'MARKET MOVEMENT NOT AFFECTING INCREMENTAL PREMIUM INFLOWS': BRYCE JOHNS

Companies in this sector have seen good premium collections and rather in the down market are increasing their exposure in the equity market at regular intervals. Rahul Jain and Rajesh Naidu of The Financial Express discussed the contra-action and other issues with Bryce Johns, chief investment officer and development actuary of Kotak Life Insurance. Excerpts are:

In the first quarter of the current fiscal, insurance companies are estimated to have pumped in at least Rs 15,000 crore or four times what was invested a year ago. What is your take on this?
Currently insurance industry is seeing a growth of 87%. Insurance products being tax exempted, the inflow of premium mainly comes in the last quarter of every financial year i.e., from January to March. Also considering the way market has reacted from October 2007, since then the number of policies distributed has gone up. If one looks at the product portfolio of our company the equity proportion is on the higher side.

The proportion of equity and debt could be 80-20 termed as aggressive fund, 70-30 being and 50-50 as balanced one. So, due to this huge inflow of premiums and majority investors opting for equity products, it is obligatory to invest in equity. We have invested in the range of 1,300 crore to 1,500 crore and a large chunk has come in the last quarter. On the other side as an insurance company we can keep higher cash levels but in a highly inflationary economy keeping cash is not feasible.

Have you seen some action from the investor’s side like redemption or slow down in the number of policies after the crash in the equity market?
Unlike in the case of mutual fund where one can redeem any time, insurance products are much more complex and for long-term like 10 to 20 years. Hence, investors who have invested cannot redeem due to lock-in period of three years in the case of ULIP and longer period for other non-market linked products. We have not seen any surrender or switching off investment from equity to debt or balanced type. On a yearly basis switching off, however, is done on a lower side at around 5% from the total number of unit holders. One more thing to note is our investment in large-cap has helped to protect the asset size or net asset value than investment in mid-cap or small-cap.

Do you see the... current equity market situation improving?
As far as equity market is concerned there would be short-term breaks. Finance and real estate companies have boon the maximum impact. We are seeing more negative news than positive. Negative news like high oil prices due to geo-political factors and speculation in the market is driving the oil prices to an all-time high. In the domestic market, high fiscal deficit in the economy and political uncertainty are major cause of concerns. Other than this the major impact is due to high inflation and interest rates. At this point fixed deposit rates look attractive due to high interest rate environment.

All these factors result in increase risk aversion among the investors and so we do not expect a v-shaped recovery. However, if one looks at a long-term perspective nothing has changed structurally and inflows would remain positive. India’s growth story is intact and would continue in the future.

We don’t see market movement affecting the incremental inflows in premium collections. One of the advantages of ULIP product is that it can be invested on monthly, quarterly and yearly basis. Systematic investment in this market works better by taking the advantage of volatility in the market and averages the cost of investment over a period of policy term.

Can you tell which one is better, ULIP or mutual fund with term insurance?
It depends upon the investor’s time horizon to achieve its goal. If one is looking for a three to five year period then mutual fund investments are effective than ULIP and attracts much lower entry load than insurance products. And due to negative sentiment and risk aversion one can look at term insurance as one time premium paid is much lower on a yearly basis for the sum insured. But one should take caution while dealing with two advisors for two different products.

Investors looking at saving for children and retirement purpose which are for 15 to 20 years, insurance products are better-off than mutual funds as they are tailor-made to fulfill investor’s long-term objective.

What kind of new and innovative products you plan to launch in the market?
We have annuity products which has guaranteed or fixed component if the market goes down or turns negative. At Kotak Life we offer products like Kotak Dynamic fund which are similar to annuity products and has fixed interest component. There is an additional feature wherein... if market goes up the equity exposure is reduced to booked profit and when market is down equity exposure is increased at lower levels.

We also have capital protection scheme which suits better in this type of market. It has capital protection feature with insurance component also. We have seen good interest in ULIP products. They constitute majority of our portfolio compared to non-market linked and term insurance products. One can use the switch feature and can convert the units from equity to debt if market goes down and vice-versa if market goes up....


Source: The Financial Express

`POLITICAL REALIGNMENT MAY AUGUR WELL FOR REFORMS`: S B MATHUR

Mumbai: Sunil Behari Mathur, former chairman of Life Insurance Corporation and a veteran insurance professional, has a new challenge. In his new role as the Secretary General of the Life Insurance Council, an industry body that deals with policymakers and regulators, he has enhanced the image of the life insurance industry. Mathur spoke to Prashant K Sahu about a host of issues ranging from mis-selling of products to foreign investment ceiling. Excerpts from an interview

Why is life insurance penetration so low?
Since the insurance sector was opened up in 2000, the penetration of life insurance has more than doubled from around 1.5 per cent of GDP to about 4.2 per cent of GDP. The world average is around 4.5 per cent. We are coming very close to the world average. In terms of ranking, India is now at 18 compared to 30 earlier.

As we have a large population and the GDP is growing fast, penetration will continue to improve. The growth in the life insurance sector was not good last year due to a decline in the single premium and LIC did not do well. However, the insurance penetration will be close to 5 per cent in India in the next two to three years.

Premium will continue to grow at 30-40 per cent annually. Insurance companies may not have done well in April-May this year, but the business has picked up from June.

What will push the growth in life insurance?
The main engine of growth used to be unit-linked insurance products (Ulips). But as the capital markets are going through a rough time, the growth in Ulips is going to be lower this year.

Companies are now launching conventional and hybrid products with ULIP features. Growth will largely depend on how the products are marketed and the number of agents to be added. We expect an addition of about 700,000 new agents this year.

Why does one still hear complaints of mis-selling?
There have been reports of mis-selling. About 50 million policies were sold in 2007-08, of which 10 million were sold in the rural areas where awareness is not very high. There is transparency, but many people do not understand insurance products.

The industry has adopted many safeguards. Only qualified agents are now allowed to sell products. The illustration of products literature is overseen by the Insurance Regulatory and Development Authority (Irda). Moreover, the rate of returns provide a scenario of good and bad times. The council is authorised to revise these indicators.

The returns cannot be more than 10 per cent during good times and less than 6 per cent during bad times. Before the sale of products, insurance companies have to disclose the fees for asset allocation, fund management and surrender for each year.

There is a clause that allows a customer to return a policy within 15 days if some conditions were not explained earlier. These steps are taken to ensure there is no mis-selling of products.

Is the 26 per cent foreign investment ceiling affecting the insurance sector?
Insurance is a capital intensive sector. The Indian promoters, who hold 74 per cent stake, find it difficult to infuse capital as foreign promoters can only bring in 26 per cent.
We hope the realignment of political forces at the Centre will be good for economic reforms. The amendments related to the insurance sector, including more foreign investment, need to be approved.

Should the resource-raising avenues be expanded?
Something can be done right away. Out of the 150 per cent solvency requirement, 100 per cent is obligatory and 50 per cent is at the discretion of the regulator. One does hope that at least the 50 per cent discretionary portion is allowed through tier-II capital and other hybrid instruments.

Source: Business Standard

MAX INDIA TAKES CONTROL IN LIFE INSURANCE JOINT VENTURE

New Delhi: Contrary to the popular trend of Indian companies diluting their economic interests in joint ventures, Max India has probably become the first domestic company to do the opposite. It has raised its economic interest in its life insurance joint venture company, Max New York Life (MNYL), from 50% to 74%. MNYL is a joint venture between Max India and US-based New York Life.

This means Max India’s share in the valuation of MNYL has gone up by 24%. A recent research report by an Indian broking house has pegged the value of MNYL at over Rs 10,000 crore based on 2009-10 premium estimates. MNYL accounts for about 80% of Max India’s consolidated revenues.

As per the options agreement signed between the partners in 2003, for every equity investment made in the 26:74 joint venture, New York Life used to contribute 26%, Max used to pump in 50%, and the Indian company’s remaining 24% used to be funded through an advance paid to it by New York Life.

It had also been agreed that when the 26% FDI sectoral cap in the insurance sector was relaxed, New York Life would have the option of increasing its shareholding in the joint venture to up to 50% at par value. These provisions had been approved by the Insurance Regulatory and Development Authority (IRDA), and were disclosed in Max India’s successive annual reports.

However, under the fresh joint venture agreement, Max has repaid the Rs 174-crore deposit paid by New York Life and increased its economic interest to 74%. The US partner will now have to buy the additional 24% shareholding at 90% of fair market value. NYL will get a 10% discount for being a promoter-shareholder when the transaction happens. This option will be valid till 2016.

“The restructuring of the joint venture will significantly enhance value for Max India shareholders here and now. Max India and New York Life have also signed on an aggressive expansion plan, which entails a peak capital investment of Rs 3,600 crore, of which Rs 1,300 crore has already been invested,” Max India chairman Analjit Singh told ET.

By raising its economic interest to 74%, Max India has also ensured that the joint venture does not become a subject of controversy in the future. The economic interest issue has been a thorny one for both the investors and the government. In sectors like insurance and telecom, where there are FDI sectoral caps, it has been a common practice for the joint venture partners to agree to a pre-determined price at which the foreign partner will hike its stake as and when the sectoral cap is raised.

This pre-determined price is almost always less than the fair market value at the date on which the share transfer actually takes place. In such instances, the foreign partner also often advances interest-free funds to the domestic partner as part of its equity contribution in the joint venture.

While there is nothing illegal in this practice, the lack of proper dislcosures by some domestic listed entities has resulted in investors overestimating the upside of these joint ventures. Morever, the government is unsure about whether varying economic interests amount to a violation of FDI sectoral caps. This issue became a flashpoint last year, when Vodafone bought Hutchison Essar, though the transaction was eventually cleared by the government.

Source: Javed Sayed
The Economic Times