‘ESI SEEN AS INEFFECTIVE HEALTH SCHEME’

Bangalore: Employee State Insurance (ESI) is seen as an ineffective health insurance scheme for the organised sector temporary employees. In a study by staffing solutions company, TeamLease Services, nearly 70 per cent of temporary employees view the ESI deduction as a form of tax for which they get no or very poor return.

The report says that only 30 per cent of the two per cent who used ESI facilities were satisfied with the facilities and this was because of the poor and dilapidated conditions of the ESI facilities.

Another reason the report cited for poor usage of the facilities was the complex functioning of the ESI scheme that makes it ‘almost incomprehensible to the employee who pays for it.’ Only 15 per cent of the employees surveyed knew how the scheme functioned.

The report says that despite ESI Corporations’ revenues of Rs 2,400 crore in fiscal 2005-06 and an operating surplus of Rs 1,130 crore, the ESI infrastructure is way below WHO standards.

ESIC has a just one bed for 1,882 people to be served, which when benchmarked against bed availability in other countries, the ratio is ‘embarrassingly inadequate and needs to be improved at the least by a factor of 3.’

Mr N. Venkataraman, CFO, TeamLease Services, said about the study, “Our research points to an immediate need to revisit the fundamentals of the ESI scheme to address the radically changed employment scenario in the country. ESI reforms need to be prioritised because of the poor value for money, poor design and lack of consumer choice.”

Source: The Hindu Business Line

FUTURE GENERALI CUSTOMERS

Using its mallassurance channel, Future Generali, the Insurance Venture of future group of India and Generali Group of Italy, ahs acquired over 2 lakh customers in just 5 days through its ‘Maha Insurance’ initiative at Big Bazaar’s ‘Maha Bachat’ promotion from August 13-07.

Source: The Financial Express

INSURANCE BROKERS SEE BIG MONEY

Mumbai: Insurance broking has a potential to reach Rs 10,000 crore in non-life insurance premia from the current Rs 3,000 crore, a broker said. The insurance broking industry, which was given permission to operate by Insurance Regulatory Development Authority in October 2002, is growing by 15-30% for the past 4 years, brokers said.

Unlike insurance agents, who represent the insurance agency, a broker represents the client, often corporates, who are looking for the best deals in non-life policy. At present, there are over 370 brokers in the country. V Ramakrishna, managing director of India Insure Risk Management Services, one such broking firm, said, “Brokers can target about Rs 10,000 crore of non-life insurance premia, out of which they currently get only Rs 3,000 crore.”

Though brokers have made a considerable dent in the Indian insurance market, it is still largely agent-driven. “Most of our clients are from the manufacturing and service sectors,” said Ramakrishna, whose firm has about Rs 300 crore in annual premia and is into composite broking, involving both direct broking and reinsurance broking.

Though the opportunities in life insurance are “mind-boggling”, he said brokers mostly avoid that space because it’s predominantly retail. While some big companies manage insurance in-house, small and medium enterprises are still hesitant to hire brokers. But attitudes are changing.

Source: DNA

UBI, TATA AIG LIFE LAUNCH RETIREMENT SOLUTIONS

Bangalore: United Bank of India (UBI) and Tata AIG Life Insurance (Tata AIG Life) on Monday announced the launch of 'United Retirement Solutions' - a customised package of three retirement products from Tata AIG Life for customers of UBI. The solutions includes - InvestAssure Future, Nirvana Plus Pension Policy and Easy Retire which offer comprehensive retirement benefits and financial protection. InvestAssure Future is a unit linked insurance plan designed to help the customer meet his needs of capital accumulation to plan for a secure retired life.
Nirvana Plus Pension Policy is a powerful retirement solution which helps the customer build a corpus for his golden years and get sound financial protection for his dependents in the event of any unfortunate event like accidental or natural death, said the company. Easy retire is an immediate annuity plan which is the ideal solution to convert the policy holder's corpus into regular income.

Source: Deccan Chronicle

LIFE INSURERS' VALUATIONS DIP ON LOWER SALES GROWTH

Mumbai: slower growth in sales of new insurance policies has affected the valuation of life insurance companies by up to 40 per cent. An international investment bank has lowered the valuation of ICICI Prudential Life Insurance by over 41 per cent to $9.2 billion compared with that of $15.7 billion assigned in February this year. In both the cases, the valuation was for 2009-10. ICICI Prudential Life was valued between $12 billion and $17 billion a year ago by most international investment banks.

“We have assigned lower multiples to growth as we see a moderation in growth,” said an analyst at the investment bank, which did not want to be identified, saying the report was meant for private circulation.

An analyst at another global investment bank, which is finalising a similar report, added that stocks of the promoters of life insurance companies too have been re-rated due to the current market volatility. In addition, he pointed out that the growth rate for new business and margins on the business also dipped, resulting in lower valuations. In addition, the depreciation of the rupee against the dollar is affecting valuations.

“Inflation is at 12.63 per cent, crude oil price is rising, money market is tightening, interest rates are rising, the international market scenario is not encouraging, the GDP growth (forecast) has been scaled down to 8 per cent, therefore the perception of the analysts about the future growth prospects over the next 12 months has been impacted,” said SBI Life Managing Director and CEO U S Roy.

During the year ended March 2008, the first year premium income of life insurers rose by 74 per cent to Rs 33,800 crore, while the growth in 2006-07 was 90 per cent. With stock markets continuing to be volatile, investors are no longer thronging to buy unit-linked insurance plans (Ulips) the way they did in the past.

When stock markets were booming, Ulip sales accounted for 75-90 per cent of new sales. In addition, HDFC Standard Life Managing Director and CEO Deepak Satwalekar said the economic slowdown and higher inflation were affecting savings of individuals.

Valuations will have an impact on public offers lined up by companies like SBI Life and HDFC Standard Life, which intend to list next year. “No doubt, lower valuations will impact our price at listing. However, the real value will be to see how the market and the growth pan out in the next one year,” said Satwalekar.

ICICI Prudential Executive Director N S Kannan, however, said the depreciation of the rupee during the last month or so has not been factored in by the investment bank that has dished out lower valuations for life insurers. “ICICI Prudential has grown 50 per cent during the first quarter, its new business achieved a profit of Rs 240 crore. However, what multiples the analysts assign to a company’s earnings depend on their outlook on which I cannot comment.”

Source: Business Standard

LIFE COS SAY COVER SALE BY MFs AFFECT DISTRIBUTION INFRASTRUCTURE

Mumbai: Life companies have expressed concern that sale of insurance cover by mutual funds could undermine the distribution infrastructure of life companies. They have also complained to the regulator that such a move would end up violating guidelines of the insurance regulator. This is the latest in the ongoing turf war between the mutual fund and the life insurance industry. Mutual funds have been attacking insurers over the lack of transparency and high charges in unit-linked insurance plans — insurance products that mimic mutual funds. Insurers have responded saying they are only exploiting the failure of the mutual fund industry to build a distribution force to sell to retail. Mutual funds have decided to get back at insurers by introducing systematic investment plans (SIPs) with a built-in life insurance cover. The insurance covers on the SIP were small and given away without any charge to the investor. Now, the mutual funds have submitted a proposal where they will sell insurance cover against which premium will be collected. Speaking to ET, Life Insurance Council chief executive SB Mathur said: “Insurance companies are spending hundreds of crores on training agents to sell insurance. If mutual fund distributors are allowed to sell insurance without adequate training, the sanctity of the training would be lost.” According to Mr Mathur, so far the insurance cover has been restricted to the target investment value (the total amount expected to be saved under a systematic investment plan). However, if mutual funds were given too much flexibility in the level of insurance cover, it could weaken the quality of underwriting and safeguards followed by life insurance companies. Insurers also point out that according to IRDA guidelines, any buyer of insurance should be made aware of the name of the company from which he is buying insurance. In the past, the regulator had barred people from naming products in such a manner that it is identified predominantly with the distributor. The other issue raised by life insurers is that of the social obligation of insurance companies. The directive to sell over a fifth of their policies in the rural sector has forced companies to invest in rural areas where costs are averaged out because of sales in urban areas. Mutual funds have no such obligation and sell largely in urban areas. Insurers say allowing them to distribute insurance can lead to cherry-picking by mutual funds.

source: The Economic Times

LIC TO SEEK REVIEW OF NEW IRDA NORMS

The new investment guidelines issued by the Insurance Regulatory & Development Authority (Irda) may have spread cheer among private sector insurers, but it has caught the country’s largest insurer, the Life Insurance Corporation (LIC), off-guard. LIC is also the country’s largest institutional player, with a staggering Rs 7.5 lakh crore of investments.

Finding itself in a quandary after Irda issued its new norms last week, LIC is now planning to approach the ministry of finance and Irda over the implementation of these norms which will have a wide-ranging impact on not only the insurance companies but also the equity and debt markets.

“We are still studying Irda’s new norms and carefully finding out the exact implications of these on our corporation. We will go back to the government and the regulator for a review of certain sections of these regulations,’’ said a senior official of LIC, requesting that he be not named.

The regulations have been gazetted, but that would not preclude a review if it is seen necessary to do so, said the official. Though Irda had consulted LIC while preparing the new set of guidelines, the revamped regulations as announced by it have caught LIC on the wrong foot.

Irda, in its latest notification aimed at removing the differential treatment of provisions applicable to public sector and private sector insurers, has mandated that no insurer can hold more than 10% equity in any company. The norms have also been broadened to include Ulips.

The new guidelines say, “10% of outstanding shares (face value) or 10% of fund size, whichever is lower, can be invested in equity shares of investee company. A sum of 10% of subscribed share capital, free reserves and debentures / bonds of investee company or 10% of fund size, whichever is lower, can be invested in debt instruments of investee company.’’ LIC, the country’s largest institutional player, has major investments in many listed companies and in many companies such investment exceeds 10% .

Earlier, in certain instances, LIC has sought special permission from Irda to invest more than 20% in some companies. The new norms also set out and review exposure criteria for investments in mutual funds, IPOs and debt instruments and also in money market instruments.

These norms give private sector life insurers more freedom to invest in larger avenues. Predictably, they have no problems with the new Irda guidelines. Puneet Nanda, executive vice-president and chief investment officer of ICICI Prudential Life Insurance, India’s largest private sector insurance company, said the new norms have given higher investment flexibility while focusing on better risk management. “This will potentially translate into higher risk adjusted returns for policyholders,’’ he said. The new guidelines will increase the private sector life insurers’ flexibility to invest in initial public offerings further.

On whether the new norms will allow more investments in the stock market, Nanda said: “Not necessarily. The extent of stock investments depends on various factors like customer goals and preference, horizon, risk appetite, product structure and investment strategy of the company.”

Ironically, only recently, the government eased the norms for investments in equity by non-government provident funds, allowing equity investments up to 15%.

Source: The Financial Express, The Indian Express, Business Standard

MINISTRY OF STATISTICS OFFERS TO SHARE DATA WITH INSURERS

Hyderabad: The Union Ministry of Statistics and Programme Implementation, is ready to share vital data with the insurance companies and provide consultancy, according to Dr Pronab Sen, Chief Statistician and Secretary of the Ministry.

“Though our primary task is to provide data on various aspects to the Planning Commission, we do possess lot of figures, which will be useful for the insurance and other financial services providers,” Dr Sen told Business Line here recently.

We have all data
On the specific data that can be shared with the financial sector, he said it depends on what a company is looking for. “From demographic patterns to income levels, all data will be with us,” he added.

The collection and accessing of data in the banking sector is easy due to the long history of banking in India and role of the Reserve Bank of India. The insurance industry still suffers from absence of data, which is crucial in product designing and marketing strategies, he pointed out.

“Unfortunately, nobody approaches us for data on insurance/banking even though we are sitting on a large data base,” Dr Sen said, adding that there was a tendency to pick up only supportive data by the corporates to suit their beliefs and needs. The relationship between data-generators and data-users should be based on two separate platforms for accuracy of inferences, he added.

Consultancy too
“If there is a dialogue between us and the insurance industry, we can guide them to the right data base. We are ready to provide consultancy if asked,” Dr Sen said.

Source: The Hindu Business Line

BANKS, INSURANCE FIRMS CUSHION FII SALES IN Q1

Banks, financial institutions and insurance (BFI) companies provided the much-required cushion to the equity markets in the first quarter of FY09. While foreign institutional investors (FIIs) sold a hefty $4 billion of equities in the quarter, the BFI investors together bought $2.6 billion of equities, a study by ENAM, titled “India Inc Shareholding – June 2008” shows.

The study analyses in detail the shareholding patterns and trends of the BSE-500 companies, and finds the mutual funds, including UTI, had also sold to the tune of $231 million during the quarter.

In sector-wise analysis, the study shows that FIIs sold banking and financial services stocks, and were also sellers in engineering and realty sectors, while they bought IT services stocks during the first quarter.

FIIs were underweight in sectors like oil and gas, IT and fast-moving consumer goods, while they were overweight in banking and financial services, pharma and realty. On the other hand, the BFI sector showed quite the opposite trend to that of the FIIs.

The BFI investors bought banking and financial services stocks, and also those in engineering, energy and oil and gas sectors. They sold IT services stocks during the quarter. The BFI institutions were overweight in metals, auto and FMCG, and underweight in IT services, banking and oil and gas.

Mutual funds, including UTI, on the other hand were sellers in banking and financial services, mirroring similar investment sentiment in some ways as that of FIIs, and also sold oil and gas stocks. They bought IT services, telecom and engineering stocks. MFs were overweight in engineering, pharma and FMCG, and underweight on IT services, oil and gas and banking and financial services, the study shows.

The study also does a concentration analysis, which shows BSE-100 stocks account for as much as 80% plus of BFI and FII holdings and 73% of mutual fund holdings. The holding pattern analysis shows promoters hold 57% in BSE-500 stocks in Q1, while foreign investors hold 17%, BFI 6%, mutual funds 4% and individuals 9% in these companies. Of the benchmark BSE-30 companies, promoters hold 51%, foreign investors 22%, BFIs 7%, MFs 4% and individuals 9%.

Sectorwise, the FII portfolio was skewed towards banking and financial services, oil and gas and IT services, with these three sectors together accounting for about 50% of the FIIs’ portfolio. Telecommunications, metals and mining, engineering and FMCG were the next preferred sectors for FIIs in terms of their holdings.

On the other hand, MFs, including UTI, favoured engineering, banking and financial services and oil and gas sectors which together comprise about 40% of their portfolio. FMCG, metals/mining, IT services and telecommunications were the next preferred sectors for mutual funds.

BFI companies leaned on oil and gas, banking and financial services and metals sectors which together comprised about 43% of their portfolio in the first quarter. Engineering, FMCG, energy and auto were the next on their holdings priority list.

Among individual stocks, the study shows Reliance Industries, HDFC and Bharti Airtel were the favourite top three stocks for FIIs, dominating the portfolio weights during the June quarter. For BFI investors, once again Reliance Industries topped the portfolio weight, followed by ITC and L&T. For the MFs, including UTI, L&T topped the weightages, followed by ITC and RIL.

Sectorally, the study shows that banking and financial services, infrastructure, retail, cement and engineering sector stocks saw a decline in FII holdings during the quarter. FMCG, IT and textiles sectors saw a rise in MF holdings during the quarter, whereas auto, diversified, media and cement saw a fall in MF holdings during the same period.
BFI investors increased their holdings in the banking and financial services, cement, FMCG and engineering sectors during the quarter, the ENAM study says.

Source: The Financial Express

A MILLION COVER FOR INDIA INC’S PAREKHS & KAMATHS

Mumbai: Key-Person insurance is catching up in a big way in the country, with banks, IT and pharma firms spending millions on insuring their indispensable employees. In fact, according to industry sources, executives like ICICI Bank MD & CEO KV Kamath and HDFC chairman Deepak Parekh could well be insured for a few thousand crore rupees. And it’s not just top officials of multinational corporations who are being insured by their employees; insurance brokers claim that key-person insurance requests from start-up IT firms are on the rise as well.
According to Naveen K Midha, senior vice-president and head of the employee benefits vertical at Willis India Insurance Brokers, a general thumb rule for key-person insurance followed over the world recommends that a key person in an organisation be insured for at least five times the net profit of the company over the past three years. So with both ICICI Bank and HDFC consistently turning in annual profits in excess of Rs 1,000 crore for the past few years, the premium figures are not hard to fathom.
“People like KV Kamath and Deepak Parekh are synonymous with their respective organisations, and big bucks being spent on them is understandable,” explains Mr Midha. But while big firms have the luxury of a strong brand name, smaller start-ups rely on their core team for acquiring business. “The need for key-person insurance is more acute in smaller firms,” he added. Interestingly, key-people for an organisation might not just be their MDs and CEOs but also technical support staff with special knowledge of the firm’s systems and even brand ambassadors.
Key-person insurance protects the company against the untimely death, disability or retirement of the insured. The insured-sums obviously vary from company to company and region to region. Also, key factors like the employees remuneration and propensity to jump jobs are taken into consideration while the policies are framed. Such schemes are also being used by some companies as an effective retention tool. Unlike life or medical insurance schemes undertaken by employers, premiums paid by companies in this case are treated as business expenses and do not attract fringe-benefit taxes either.
Willis is one of the world’s largest insurance brokerages, which has been represented in India for the past three years. According to, Willis Asia MD James Quirk; Indian companies have increasingly started adopting a host of relatively new insurance products, like cover for trade and political risks, and insurance for mergers and acquisitions. Such products have gained prominence in India of late, given the rising number of outbound acquisitions and the volatility in the international economic conditions.

Source: The Economic Times

IRDA TO INSURERS: SET UP RISK MGMT SYSTEMS

The Insurance Regulatory & Development Authority (Irda) has asked insurers having assets under management of over Rs 500 crore to personally see that someone acts as fund manager and dealer. “The investment system should have separate modules for front and back office,” said Irda in a notification.

Transfer of data from front to back office should be electronic without manual intervention, that is, without re-entering data at the back office. The insurer may have multiple data entry systems, but all such systems should be seamlessly integrated without manual intervention. The front office shall report to the CEO, through the chief investment officer.

Source: The Financial Express

RISK FIRMS GET MORE INVESTMENT AVENUES

Mumbai: After a two-year wait, the Insurance Regulatory and Development Authority (Irda) has notified new investment norms that provide more flexibility to insurance companies for parking funds in debt instruments offered by banks and allows more money to flow into initial public offers (IPOs).

At the same time, it has put in place group and individual company exposure norms for unit-linked insurance plans (Ulips) that did not face any such restrictions so far. Exposure to any group of companies has been capped at 25 per cent, while it has been restricted to 10 per cent each for equity and debt instruments for one company.

Investment in fixed deposits is, however, outside the 25 per cent ceiling. In addition, the revised guidelines issued on Friday evening, have stipulated that 5 per cent of the investible corpus can be parked in immovable property.

With Ulips emerging as the largest selling product in a life insurer’s portfolio, these companies have become the biggest qualified domestic institutional investor in recent months. Ulips constitute anywhere between 75 per cent and 90 per cent of the business premium for insurance companies. Of the funds raised through Ulips, more than 90 per cent flows into the stock markets.

To ensure that insurers invest in safe instruments, Irda has specified that at least 75 per cent of debt investments, other than government and other approved securities, should enjoy AAA or an equivalent rating. These norms are also applicable to Ulips.

As part of Irda’s drive to expand the investment basket, mortgage-backed securities (MBS) have been included under the ‘approved investments’ group as part of exposure to the housing sector.

Besides, securities such as bonds and debentures issued by companies and financial institutions that enjoy a minimum AA or an equivalent rating will be part of the ‘approved investments’ group. In case of downgrades, they will be shifted to ‘other investments’ group. Government securities and liquid mutual funds are also ‘approved investments’.

Under the norms, insurers have to invest up to 35 per cent of their funds in approved investments. Of this, at least 15 per cent has to be invested in housing and infrastructure and asset-backed securities with underlying housing loans.

In case of venture capital, Irda has said that life insurers can now invest up to 3 per cent of their investible corpus and general insurers 5 per cent of the investment fund, or 10 per cent of the VC fund size, whichever is lower.

While the exposure limit for financial and banking sector is 25 per cent of the investment assets, Irda has provided flexibility by specifying that investment in fixed deposits, terms-deposits and certificate of deposit of scheduled banks will not be categorised into the group if the bank is not a promoter of the insurance company.

The criterion on the minimum size of the IPO including ‘offer for sale’ for investment by insurers has been reduced to Rs 200 crore from Rs 500 crore earlier. For life insurers, the maximum bid amount for IPO investment has to be less than 10 per cent of the subscribed capital of the investee company or 10 per cent of the fund or assets in case of a general insurer.

Insurance companies had sought relaxations saying that they represent individual investors and should not be treated at par with other institutional players.

Source: Business Standard

VC FUNDS BULLISH ON IRDA'S MOVE

Mumbai: The Insurance Regulatory and Development Authority’s (Irda) move to allow insurance companies to invest in venture capital (VC) funds could help them raise money more easily, but it could take up to 12 months for insurers to start investing.

On Friday, Irda allowed life insurers to invest 3 per cent of their total investible corpus in VC funds or 10 per cent of the fund’s size, whichever is lower. For general insurers, the limit is 5 per cent of their investment assets or 10 per cent of the fund size, whichever is lower. Based on life insurers’ assets under management of Rs 700,000 crore, potentially over Rs 21,000 crore can flow from this segment alone.

Canaan Partners CEO Alok Mittal said the move is a good beginning, but does not translate into immediate gains. “Insurance companies will have a good opportunity to be a part of the growing VC market in India. Over a period of time, more and more insurance companies will invest as they look at it as a part their asset management exercise,” added Vishal Tulsiyan, director and CEO, Motilal Oswal Ventures.

“Worldwide, insurance companies, pension funds, sovereign funds and government funds are investing in VC funds. The key thing is that there is a lot of capital flowing from outside than inside in our domestic market. Insurance funds will provide a boost to VCs” said Sudhir Sethi, CEO, JDG Ventures.

Frontline Strategy, a Mumbai-based VC fund, said the norms would help broaden the pool of money available for domestic funds. “It will take six to 12 months before the funds starts flowing from the insurers,” added Supratim Basu, a director of an early-stage fund. While the options for VC funds increase, Sidbi Venture Capital CEO Ajay Kumar Kapur said insurers are already investing and the cap will hold back some of the flows.

VC funds have invested $340 million in 51 deals in the first half of 2008. Although high valuations are a worry for VC funds, they are confident about the investment flow for the year ahead.

Source: Business Standard