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

MAX INDIA REJIGS INSURANCE JV

Mumbai: Insurance and healthcare major Max India targets to achieve a revenue of $5 billion by 2011-12 and has restructured its joint venture with its insurance partner New York Life Insurance, said Analjit Singh, chairman.

The company modified the terms of options available to its foreign partner for purchasing an additional 24 per cent stake in Max New York Life Insurance Company, to increase its stake to 50 per cent, he said at a press conference in Mumbai, today.

"This option will be available for a period of eight years for them and will be offered at 10 per cent discount than the market price," said Analjit Singh. The restructuring was done as part of an understanding among the partners to hold 50 per cent each in the joint venture. He explained that an option deposit was given by New York Life to Max India, and the company has paid back Rs 175 crore, a week ago. The option deposit will be used to purchase additional equity.

He said the company was expected to break even by 2011. It plans to increase the number of life insurance agents from 47,000 to three lakh and to open 215 offices every year. The target is to add 900 agency offices and 700 rural offices by 2011-12.

The company has planned a capital expenditure of Rs 3600 crore and the two promoters have already infused about Rs 1232 crore for the proposed expansion. He said the company will start a standalone new joint venture health insurance project within 15 months with Bupa Finance of UK. Bupa will have 26 per cent stake, Max India 50 per cent stake and Analjith and family will have the remaining 24 per cent stake in the new venture.

Source: Business Standard

SBI LIFE Q1 NET UP 241% AT RS 972 CRORE

SBI Life Insurance Company Limited has reported that the New Business Annualised Premium Equivalent (APE), a standard measure in the Industry that takes Single Premium Income at 10 per cent, has grown by 241 per cent to Rs 972 crore. The total premium of the company grew by 169 per cent to Rs 1,387 crore.

Source: The Pioneer, Business Standard

LIC ANNOUNCES 1,000 SCHOLARSHIPS FOR ECO BACKWARD STUDENTS

Mumbai: LIC Golden Jubilee Foundation has announced 1,000 scholarships for students belonging to economically weaker families in the country. The scholarship Scheme is for students pursuing higher studies in medicine, engineering, graduation in any discipline, diploma course in any field and vocational course at graduation level, through government recognized colleges/institutes. Candidates who have passed their class 12 exam in academic year 2007-08, with at least 60 per cent marks and above and whose family income is Rs 60,000 and below per annum, will be eligible to apply.

Source: The Financial Express

The monsoon between a curse and a blessing

The significant increase in extreme monsoon rainfalls, a burgeoning of insured values, and fiercer price competition are major challenges for the insurance industry in India. The market is currently going through a complex process of liberalisation and adjustment.
The monsoon is as much a part of India as the country’s extensive dry seasons. Producing about 80–90% of the country’s annual precipitation, the summer monsoon (June–September) is a source of life to India, regulating, as it does, the gigantic country’s water balance. It is particularly crucial for the agricultural sector, which accounts for about a fifth of India’s gross domestic product and provides work for around two-thirds of the population. But the monsoon itself has changed. The frequency and intensity of extreme rainfall have both increased considerably, whilst exceptional rainfall levels have given rise to serious floods and ensuing damage in recent years. In 2005, the highest level of precipitation ever measured on a single day in India was recorded in Mumbai. In 2007, the effects of the summer monsoon were extremely intense for the third year in succession.
The annual overall loss due to flood in the years 2005– 2007 averaged roughly US$ 4bn, three to four times higher than the average for the period 1980–2004. Escalating concentrations of values in exposed regions like Mumbai combined with growing insurance awareness caused insured losses to soar during this period. Is this latest development merely an outlier or the herald of a long-term change in monsoon activity?
Climate change as the cause
Scientific studies show that monsoon activity in central India has changed significantly (Goswami et al. 2006). The daily variability of monsoon rainfall, i.e. the range between severe and less severe daily rainfall events, has increased markedly in the last 50 years. In central India, the number of intense precipitation events per day (at least 100 mm/day) has increased by about a third since 1950. The figure is even more dramatic in the case of extreme precipitation events, involving levels of at least 150 mm/day. It has roughly doubled since 1950 – a highly significant increase in scientific terms. At the same time, there were considerably fewer instances of moderate precipitation events in the observation period. Although these opposing trends mean that average rainfall has not changed, this is not good news. On the contrary: whilst the moderate monsoon is important for India’s water balance, especially for the agricultural sector and the supply of drinking water, intense and extreme rainfall have a major bearing on losses. What is more, the majority of models quoted by the Intergovernmental Panel on Climate Change in its report assume that the total rainfall depths of the summer monsoon will increase in future. Even if there are large deviations between the individual scenario calculations, there is no doubt about the outcome: Indian summer monsoons are very likely to become more extreme.
And this is due to global warming. Sea surface temperatures in the tropical Indian Ocean, for instance, have risen by about 0.5°C over the last 50 years. This results in more moisture reaching India with the monsoon.
It is a risk of change that is difficult to quantify and the Indian insurance industry must give greater attention to devising appropriate solutions – particularly as the values to be insured are rapidly increasing.
Losses increase – Premiums come under pressure
In India, the natural perils of windstorm and flood (STIF) are automatically included in any property insurance policy. Weather risks, particularly monsoon rainfall, have always constituted a major threat. The process of global warming has made it more and more difficult to forecast the beginning and magnitude of annual monsoon rainfall. Between 1980 and 2007, weather disasters (floods, storms, droughts) caused overall losses amounting to US$ 53bn (2007 values). The main peril is flood, which accounted for about 77% of the overall losses and 66% of the insured losses over the said period.
The summer floods in 2005 (Mumbai Floods) exhausted nearly all the market players’ cat XL programmes for the first time ever. Due to the agreed net retentions, some of them had large losses that were not covered. There is already a broad consensus in the market that the rates, especially for flood risks, have to be adjusted substantially. Some insurers are considering the possibility of quoting separate premium rates, but this is not to be expected in the short term due to the shortage of claims statistics and especially to the fact that as of 1 January 2008 pricing controls have been removed in all lines of property insurance except motor third-party liability.
Market and market players in a learning process
For the insurance industry, the question is how the Indian insurance market will develop in the medium to long term. If there are no major loss events with large insured losses, pricing pressure will certainly be maintained for some time. Moreover, companies have in the past compensated underwriting losses with high returns on India’s booming stock exchange. Reinsurance capacity is generally available in good measure.
At present, however, India is going through a process of learning and adjustment. The market has yet to encounter a phase with a scarcity of reinsurance capacity that necessitates risk-based pricing. Generally speaking, the private insurance industry should in the long term offer coverage concepts, such as a pool solution with compulsory insurance for natural hazards. These require both technical know-how and financial resources, however. International reinsurers could provide both, but the scope for efficient risk transfer in India is limited at present. Reinsurance is mainly provided by the General Insurance Corporation of India (GIC Re), to which non-life insurers must currently cede 15% of their cessions.
Low market penetration – High growth potential
The socio-economic transformation of India presents its insurance industry with great challenges. Forecasts suggest that the country’s insurance market will increase to some €100bn, five times its current volume, over the next ten years. This growth will be driven above all by rising demand from India’s middle class, currently numbering some 300 million people, and the improvement and expansion of the infrastructure.
Freedom of establishment for foreign insurers is limited at present to joint ventures with a maximum foreign capital share of 26%. The government is currently examining the possibility of increasing this share to 49%. At present, 17 property insurance companies and 17 life insurers are licensed to do business.
These figures vividly illustrate how much the insurance industry has already profited in recent years from the opening of India’s market as well as from the country’s high rate of economic growth. Between 2001 and 2006, the annual increase in premiums averaged roughly 24% in life and 11% in non-life. In an international comparison based on total population, market penetration is still comparatively low in what is the second most heavily populated country in the world. With an average premium volume as a percentage of GDP, market penetration is about 0.6% (non-life) and 4% (life). In the non-life sector, it is estimated that 90% of the Indian population have no insurance protection whatsoever. In terms of absolute premium volume, however, the country already ranks fi fth in Asia after Japan, South Korea, China, and Taiwan and fifteenth in the world (2006). And experts agree that the speed of expansion will continue to be high in the years to come.
Positioning ourselves selectively as a reinsurer
Munich Re has 50 years of experience on the Indian insurance market; it knows the market players and local customs and practice. We opened an office in Kolkata in 2000 and a representative office in Mumbai the following year. We enjoy the confidence of the Indian insurance market and, on the strength of our long-standing business relations, are recognised as a reliable reinsurance partner.
In the current market phase, we are looking beyond our traditional reinsurance business, positioning ourselves as a global reinsurer particularly in niche markets and in sectors where quite specific, individual solutions are required. For example, we are stepping up our involvement in renewable energy projects. With a view to offering attractive insurance solutions in rapidly growing emerging markets, we developed a new product last year: the Kyoto Multi Risk Policy.
We also make available our risk knowledge and financial strength in connection with large and very large risks – a segment that is continuously gaining in importance in the dynamically growing economy of India. We not only provide our capacity but also make an important contribution to the development of risk awareness.
We intend to do everything in our power to support India in the reinsurance sector. To ensure the stability of its strongly expanding insurance market, deregulation must be extended from India’s primary insurance market to include international reinsurance business as well. We intend to open a reinsurance branch as soon as the legal framework permits.

Source: Munich Re

FICCI TO PRESENT 10-POINT AGENDA ON FINANCIAL SECTOR REFORMS TO PM

New Delhi: Industry chamber Ficci will submit a 10-point comprehensive reform agenda (CRA) to Prime Minister Manmohan Singh this week. The agenda will focus on financial sector reforms including pension, insurance and banking. “These are the prime areas Ficci is planning to bring into focus through the 10-point agenda,” said Ficci secretary-general Amit Mitra.
“The Pension Fund Regulatory & Development Authority (PFRDA) Bill enables a framework, which can help create pensions for the unorganised sector and later include private sector participation in the pension sector, which has not been mentioned in the legislation otherwise,” said Mr Mitra. The PFRDA will help the average earners in the informal sector who are hitherto deprived of financial social security post retirement. The Bill is pending in Parliament despite the approval of the standing committee on finance.
Insurance is another sector that has been taken up by Ficci in its 10-point agenda. India opened its insurance market to the private sector in 1999 when Parliament passed a law establishing an independent regulatory body to oversee the insurance market. “In spite of this, India’s insurance market remains very small compared with some of the major emerging markets,” said Mitra.
India needs to raise the cap on foreign direct investment (FDI) to attract capital for the industry. The Insurance Laws Amendment Bill includes raising the cap on foreign stake in insurance firms to 49% from the current 26%.
“We have been pushing for the FDI cap to be raised to 49%. Many companies entered the Indian market with this expectation. India’s insurance industry needs capital, and a major source of capital would be from foreign investors, who are now limited to 26% ownership,” said Mr Mitra.

Source: The Economic Times

HIGHER FDI IN INSURANCE TO BOOST ECONOMY:

Mumbai: Moody’s has said that raising foreign direct investment limit in insurance would be a positive for the Indian economy. However, the rating agency has expressed scepticism over the government’s ability to push through the entire gamut of reforms given the short tenure and uncertainty of the support from its new-found allies on economic reforms. According to Chetan Modi, head of Indian operations for Moody’s, the government has won the trust vote on the issue of the nuclear deal and it was not clear what the thinking of other political parties supporting the US were on economic reforms. He added that while the government had won the vote, it still had a natural life which comes to an end next year. He added that the concerns of all parties were likely to be on inflation, which could be the focus area for the government. However, even if the government were to push through one of the items on the reform agenda — raising foreign investment in insurance to 49% from 26% at present — it would have positive implications for the industry and the economy. “The general change would be seen as encouraging to foreign investors and would be encouraging to the Indian economic environment” said Mr Modi. On the outlook for India’s rating, Mr Modi said that Moody’s has currently given BAA3 investment rating on India’s forex exposure and BA2 rating on domestic debt, which reflects a ‘stable’ outlook. “We are constantly assessing the domestic situation and have already incorporated the coalition structure of Indian Government and the recent development in the political scene therefore doesn’t add any particular impact on our ratings,” he said. In another statement issued here, the rating agency said that a nuclear deal with the US following the trust vote could see India gain access to US civilian nuclear technology as well as end sanctions preventing purchases of American uranium. “The deal with the US has the potential to significantly boost India’s nuclear energy production, which currently provides around 3% of total electricity supply. By developed nation’s standards, India’s civilian nuclear energy sector is decades behind and a deal with the US could see a 10-fold increase in nuclear generator capacity by 2020 according to some experts”. But with the deal still having a long way to go before being formally signed by the nation’s leaders and more political wrangling is likely. This means that Indians will do doubt have to wait some time before they see the benefits of the agreement in the form of greater, and more secure, energy production, the rating agency said.

Source: The Economic Times, The Pioneer

INSURANCE PLAYERS NOW SEE SCOPE FOR MORE FDI

Mumbai: The Government’s winning of the trust vote has raised the insurance industry’s hopes of seeing foreign direct investment in the sector being raised from 26 per cent to 49 per cent.

Analysts, however, believe that the Government may first look at tackling larger issues such as inflation before pushing forward the reforms agenda. Ms Shikha Sharma, Managing Director, ICICI Prudential, said that the hike in FDI would ensure that capital would no longer be a constraint to the growth of insurance companies.

“With many companies nearing their tenth year of operation, more FII participation will help in better discovery of company valuations,” she said. As insurance companies such as ICICI Prudential, SBI Life and HDFC Standard Life, are two years away from entering their tenth year of operation, listing is an option they might look at first.

Insurance regulations currently allow companies to list only after their tenth year of operation. Promoters are also expected to dilute their stake in the insurance company after the tenth year. The nature of the agreement with the foreign partners could also be a factor to be considered.

“If the nature of the existing agreement is based on market price, then the foreign partner could look at listing the company and then buying the balance stake. If it is based on a formula method, then they may buy the additional stake and then list,” said Ms Sharma.

ICICI Prudential has a market-based pricing agreement with Prudential. Mr U.S. Roy, Managing Director and CEO, SBI Life, said that the hike in FDI would help in building a stronger and long-term relationship with the foreign partner. “It will also help the domestic partner in freeing its investment for channelling to other areas,” he said.

Other reforms
Apart from FDI in insurance, the industry is looking forward to a number of reforms to be pushed through — allowing foreign investors voting rights in proportion to their equity holding in banks from the current cap of 10 per cent, passing the Pension Fund Regulatory and Development Authority (PFRDA) Bill that allows private sector more participation in the pension sector and further disinvestment in public sector companies.

Mr Dharmakirti Joshi, Director and Principal Economist, Crisil, said that the Government’s priority would, however, be tackling inflation, managing coalition dynamics as well as the elections. “Pushing forward PSU disinvestment will help in reducing fiscal stress,” he said.

Source: The Hindu Business Line, Business Standard, The Tribune, Daily News & Analysis, The Indian Express, Deccan Herald, The Indian Express

DISINVESTMENT PROCESS MAY GAIN SPEED

New Delhi: After the initial euphoria over reforms getting a leg-up following the United Progressive Alliance (UPA) Government surviving a trust vote and freeing itself from the Left’s clutches, reality seems to be dawning upon policymakers.

The win at Tuesday’s confidence vote will technically allow the Congress-led alliance to be in power till April next. But as a senior official noted, the ‘window of opportunity’ to push through major reforms exists only till around October, after which Assembly elections would take off in six States.

“Any Bill to be passed would have to be taken up in the Monsoon session, starting next month. “While there is also the winter session after that, it would be politically difficult to enact any big-ticket legislation then”, he pointed out.

The Finance Minister, Mr P. Chidambaram, on Wednesday, stated that the Government will ‘try’ to take up various pending Bills in the coming session itself. These pertain to raising the existing 26 per cent foreign direct investment (FDI) limit in insurance companies to 49 per cent, removing the 10 per cent individual voting rights cap in banks and conferring statutory status to the Pension Fund Regulatory and Development Authority.

“Getting each of them passed is akin to surviving a fresh trust vote. After all the bad blood created in the recent vote, it would take some deft manoeuvring to obtain the support of the main Opposition, Bhartiya Janata Party (BJP), leave alone the Left”, the official said.

While the Government’s new ally, Samajwadi Party (SP), has indicated that it is open to pension, banking and insurance reforms, “it is risky to rely just on their numbers, more so after all the recent horse-trading allegations”.

The official was also pessimistic on FDI being permitted in retail, even if it involves no legislation per se. “Forget SP, even sections within the Congress are dead opposed to it”, he added.

Possible areas
So what reforms can one realistically expect? Disinvestment is one area that could see some action. With the Left off its back, the Government is planning to go full steam with the initial public offerings (IPO) of NHPC Ltd and Damodar Valley Corporation (DVC).

Confirming this, the Minister of State for Power, Mr Jairam Ramesh, told Business Line, “We will complete the NHPC IPO by September-October, if market conditions permit”.
The company is slated to issue 10 per cent fresh equity and offload five per cent through an offer for sale, which will reduce the overall Government stake to 86.3 per cent.

Study under way
In the case of DVC, the Government has already commissioned KPMG to work out the modalities for going public. “DVC is a statutory corporation that was, in fact, created 60 years back through an Act of the Constituent Assembly. The consultant is examining various options, including floating of a subsidiary that can be listed without the need to amend the Act relating to the parent company”, Mr Ramesh said.

The Government also wants to list companies such as Satluj Jal Vidyut Nigam and North Eastern Electric Power Corporation, though these are unlikely to happen in the current Government’s term, Mr Ramesh admitted.

Source: The Hindu Business Line

IRDA PANEL SEEKS TO CURB ULIP SALES

Mumbai: Recent volatility in stock market has made Insurance Regulatory and Development Authority (Irda) to set up a committee to suggest ways to discourage rampant sale of unit-linked products by life insurance companies.

Sources familiar with the development said the insurance regulator has set up a committee of appointed actuaries from various life insurance companies to make suggestions to encourage life insurers to sell more traditional products, especially in semi-urban and rural areas.

Irda is of the view that there should be a minimum quota for traditional products that any insurer has to sell, sources said.

About 90 per cent of the total premiums collected by the insurance companies come from unit-linked products. The figures will further rise if only private sector players are considered.

In a meeting held in Bangalore recently between Irda members and the appointed actuaries of life insurance companies, the insurance regulator said it has received complaints from public regarding unit-linked products.

"The regulator's concern is that linked products have volatile returns that are not suitable in rural areas, and for unsophisticated policyholders," said a source present in the meeting.

The regulator's concern comes due to volatile stock market. The Bombay Stock Exchange's 30-share Sensex has lost over 35 per cent from its all-time high of 20,873 on January 8 to 13,461 on June 30.

The insurers, on the other hand, have said traditional products are not transparent, offer lower returns because of prescribed asset allocation, and require higher capital to support the guarantees.

In the meeting, R Kannan, the member actuary of Irda, indicated that Irda is looking at making "profit business" more attractive to insurers.

The profit business, which is related to "par policies" or "policies with participation in profits", entitles the insurer to retain maximum 10 per cent of the profit during the term of the policy. The remaining 90 per cent is distributed to policyholders in form of bonuses.

Source: NW18, Business Standard

IRDA OPPOSES LIC`S MOVE TO NOMINATE `STRANGER` NOMINEES

Chennai: The Insurance Regulatory Development Authority (Irda) is planning to issue a notice to Life Insurance Corporation of India (LIC) to stop the latter from allowing policy-holders to nominate "strangers" (those who are not close relatives) and religious institutions as beneficiaries of life policy claims.

Last week, the corporation had decided to allow its policy-holders to nominate strangers and religious institutions as beneficiaries for their insurance policies. A nominee is statutorily recognised as a payee who can give a valid discharge to the corporation for the payment of policy money.

The state-owned insurer changed nominee norms after a large number of policy-holders requested permission to nominate people who are not immediate family members or religious institutions as beneficiaries.

Industry experts and Irda officials, however, believe that the corporation's move could be the "beginning of a disaster". A senior industry representative said the change in nominee rules could prove to be a threat to the life of the policy-holder and create opportunities for money laundering.

LIC representatives, however, believe that norms have been put in place to nominate strangers, who by definition can be orphans, orphanages, distant relatives, family friends and people who are loyal and close to the policy-holders.

Source: Business Standard

HIGHER FDI IN INSURANCE TO BOOST ECONOMY: MOODY’S

Moody’s has said that raising foreign direct investment limit in insurance would be a positive for the Indian economy. However, the rating agency has expressed scepticism over the government’s ability to push through the entire gamut of reforms given the short tenure and uncertainty of the support from its newfound allies on economic reforms.
According to Chetan Modi, head of Indian operations for Moody’s, the government has won the trust vote on the issue of the nuclear deal and it was not clear what the thinking of other political parties supporting the US were on economic reforms. He added that while the government had won the vote, it still had a natural life, which comes to an end next year. He added that the concerns of all parties were likely to be on inflation, which could be the focus area for the government.
However, even if the government were to push through one of the items on the reform agenda — raising foreign investment in insurance to 49 percent from 26 percent at present — it would have positive implications for the industry and the economy. “The general change would be seen as encouraging to foreign investors and would be encouraging to the Indian economic environment” said Modi.
On the outlook for India’s rating, Modi said that Moody’s has currently given BAA3 investment rating on India’s forex exposure and BA2 rating on domestic debt, which reflects a ‘stable’ outlook.
“We are constantly assessing the domestic situation and have already incorporated the coalition structure of Indian Government and the recent development in the political scene therefore doesn’t add any particular impact on our ratings,” he said.
In another statement issued here, the rating agency said that a nuclear deal with the US following the trust vote could see India gain access to US civilian nuclear technology as well as end sanctions preventing purchases of American uranium.
“The deal with the US has the potential to significantly boost India’s nuclear energy production, which currently provides around 3 percent of total electricity supply. By developed nation’s standards, India’s civilian nuclear energy sector is decades behind and a deal with the US could see a 10-fold increase in nuclear generator capacity by 2020 according to some experts”.
But with the deal still having a long way to go before being formally signed by the nation’s leaders and more political wrangling is likely. This means that Indians will do doubt have to wait some time before they see the benefits of the agreement in the form of greater, and more secure, energy production, the rating agency said.
Source: The Economic Times