LIC NOT AVERSE TO STAKE SALE IN SATYAM

New Delhi: Keeping an eye on engineering giant L&T's moves on the Satyam front, government-run life insurance major LIC, which has equity investment and board representation in both the companies, on Thursday said the IT firm was still valua ble and could be revived with right leadership. “We have an investment there (Satyam). If better returns come from a sale, then we (will) go for a sale,'' LIC Chairman told PTI but added that he would not give any instruction to two nominees that the insurer has on L&T board on the issue. The country 's top life insurer, which has over four per cent stake in Satyam, however, ruled out joining the race for acquiring the troubled IT firm, either alone or with L&T.

“We don't have the expertise to run an IT company. We are clear on Satyam issue that we are an investor... We are not interested in controlling the company. We are interested in the prosperity of the company as our money is still there,'' Vijayan said. Asked given its position as the single largest investor in L&T with about 18 per cent stake, LIC would want the engineering major to take over the IT firm. “We are the single largest shareholder, but L&T is a board-driven company. It is not proper for me to discuss.''
On its suggestion to LIC nominees on L&T board, he said that the insurer had two members on L&T board, but their brief was to focus on proposals made at the meeting and the issues arising out of those. When asked what LIC would prefer between a takeover or revival of Satyam, Vijayan said, “If somebody is taking over and giving us a better return, then we will do it

Source: PTIS, The Hindu Business Line, The Indian Express, Deccan Chronicle, The Pioneer, The Statesman

ECGC NOT TO HIKE PREMIUM ON INSURANCE COVERAGE

Kolkata: Export Credit Guarantee Corporation (ECGC) has no plans to hike premium on its insurance coverage in near future. The coverage is offered to Indian exporters and bankers to protect them against payment defaults by overseas buyers. In a related move to make insurance coverage more attractive among exporters, the Corporation has resolved to expedite claim settlements on payment defaults against exports of Indian goods and services.
In the next MoU with the government, ECGC will make a commitment to settle 50% of the total claims within seven days, instead of ten days being taken now to do the job. The balance claims will be cleared in 50 days in case of micro, small and medium exporters (MSME) and 55 days for general category exporters. The existing time span is about 60 days. The next MoU, due for 2009-10, is expected to be signed at the beginning of the year.
“Exporters are increasingly becoming aware about the benefit of taking risk coverage for their exports, especially after the outbreak of financial turmoil and economic slowdown in the global space. This tendency is being more noticed among pharmaceutical, ready-made garments, and gems and jewellery exporters who have been hit hard due to the meltdown in markets like the US and the UK,” ECGC executive director S Prabhakaran told ET.
Already, claims against non-receipt of payments have started pouring in from those sectors. For instance, the insurer has cleared an insurance claim of Rs 23.5 crore, which was raised by a jewellery exporter from the eastern region for not getting back export receivables from a buyer in Hong Kong. With the ready-made garment exporters facing problems in getting their payments from the US market, ECGC has settled claims of Rs 95 crore last month against payment defaults by two American buyers.
Even as claims against payment defaults are expected to go up this year, it would not have any adverse impact on ECGC’s income. This is reflected in the growth of premium income in the current year, which grew 14% to Rs 571 crore till mid-January.

Source: The Economic Times

IRDA REVISES NORMS FOR OVERSEAS REP OFFICES

Mumbai: With global insurance companies taking a hit due to the economic recession, the Insurance Regulatory and Development Authority (Irda) has asked domestic insurance companies to provide information on the business gathered through the representative or liaison office, expenditure incurred, details of complaints received and redressed. The regulator has asked insurers to submit reports on a quarterly basis and at the close of a financial year in the annual report.

Source: Business Standard

NIC TO HIKE PREMIUM FOR DIRECTORS’ RISK POLICIES

Kolkata: Faced by a rising demand for Directors and Officers (D&O) liability policies after the Satyam scam, the National Insurance Company Ltd is looking at increasing the premium rate by over 30 per cent, according to NIC sources. The public sector insurer may also formulate more restrictive clauses for D&O, for example, exclusion of all claims in case of criminal offence by the directors, a senior NIC official told Business Line.

D&O liability policies offer cover against any loss or defence-cost that an organisation may incur on account of mistaken actions taken by the directors and officers in pursuance of their duties.

Satyam, an eye-opener
“The Satyam incident has been an eye-opener for us in considering formulation of more restrictive clauses and restructuring the premium pricing of liability policies,” he said. The decision has also been influenced by an overall lack of confidence on corporate governance affairs , he added.

The decision to increase premium has also been influenced by an overall lack of confidence on corporate governance affairs after the recent scam, he pointed out. The annual premium on liability policies varies between 0.15 to and 0.30 per cent of the indemnity limit depending upon the risk attached to a company. After the hike in premium, it may range anywhere between 0.2 and to 0.6 per cent of the risk cover, he said.

NIC’s premium income from liability insurance constitutes a mere 2 two per cent of its total premium income. The concept was introduced in the country only in the last two-three years and is yet to be tapped significantly. The total premium collection by the general insurance industry in the countryIndia till October, 2008 from liability policies was to the tune of Rs 386 crore, of which NIC collected over Rs 25 crore. The segment has been growing year on year at over 30 per cent for the industry, according to IRDA data.

“There is a huge growth opportunity in the D&O liability segment, particularly in the current volatile economic conditions. We, however, need to price the product optimally as the downturn also attaches higher risk of litigation against executives,” the officer said.

Source: The Hindu Business Line

BAJAJ FINSERV TO SEEK GOD FOR ASSET MANAGEMENT

Mumbai: Financial service company Bajaj FinServ Ltd is getting ready to enter the assets management business, its managing director said on Thursday. “We desire to get into the business,” Sanjiv Bajaj said on the sideline of an industry conference. He said on the sidelines of an industry conference. He said he was in talks with Germany’s Allianz. Bajaj already runs insurance joint venture with Allianz in India.

Source: Reuters, Mint

A CASE FOR HIGHER DEPOSIT INSURANCE

The world financial market is facing one of the worst crises since the Great Depression of the 1930s. The $700-billion bailout, which some analysts are calling “cash-for-trash”, has barely calmed the international financial market, which is still coming to the grips with the huge fallout of the sub-prime crisis.

Unlike the earlier Savings and Loan Association crisis of the 1980s and 1990s in the US, the present debacle is still playing out, not only in Europe but also in Asia, including developed countries such as Japan and emerging countries such as China and India. It was widely believed by experts the world over that deposit insurance would avert this kind of crisis but it has not. However, it has surely minimised the run on the banks that would have led to a repeat of the 1930s.

Deposit insurance was seen as a measure of protection for depositors, particularly small depositors, from the risk of loss of their savings, arising from bank failures. The purpose was to avoid panic and promote greater stability and growth of the banking system — what in today’s world is termed financial stability.

But in the midst of a crisis in the global banking system, the concern is rather more critical — for many, a matter of survival or otherwise. The common man’s real concern is whether the insurance actually works.

Deposit insurance is at different levels in different part of the world. In India, deposits were covered, in the first Act of 1962, only to the extent of Rs 1,500 — the maximum amount payable was revised upwards to Rs 5,000 from January 1, 1968; to Rs 10,000 from April 1, 1970; to Rs 20,000 from January 1, 1976; to Rs 30,000 from July 1, 1980 and now to Rs 1 lakh from May 1, 1993. Since then, it stands at Rs 1,00,000 ($2,500).

The Government charges a premium of 5 paise, later raised to 10 paise for Rs 100. This covers a customer’s deposit, plus interest per bank in all the branches of the bank, up to a maximum of Rs 1,00,000. If one has an account in more than one bank, he is entitled to cover for another Rs 1,00,000 with each of the banks.

How safe?
As the world is coming to terms with the latest financial crisis, the Indian stock market has lost more than Rs 1,60,000 crore in value. In India, the banking sector has been affected more than the others.

The question being asked by the ‘aam aadmi’ (common man) is: “Is my deposit safe with the banks?” Despite the assurance by the RBI and our Finance Minister, the answer is only relative ‘Yes’, and not an absolute ‘Yes’. Even though our deposits with the banks are reasonably secure it is only due to such assurances, not because of any legal obligation of the fund or the Government.

Deposit insurance, as we know it, was introduced in India in 1962. India was the second country in the world to introduce such a scheme — the first being the United States in 1933. After the setting up of the Reserve Bank of India, the issue came to the fore in 1938, when the Travancore National and Quilon Bank, the largest bank in the Travancore region, failed.

The banking crisis in Bengal between 1946 and 1948 revived the issue of deposit insurance. It was in 1960 that the failure of Laxmi Bank and the subsequent failure of the Palai Central Bank catalysed the introduction of deposit insurance in India. The Deposit Insurance Corporation commenced functioning on January 1, 1962. In 1968, the Deposit Insurance Corporation Act was amended to extend deposit insurance to ‘eligible co-operative banks’.

The 1960s and 1970s were a period of institution-building. 1971 witnessed the establishment of another institution, the Credit Guarantee Corporation of India Ltd (CGCI). In 1978, the DIC and the CGCI were merged. After the merger, the focus of the new entity, the DICGC (Deposit Insurance and Credit Guarantee Corporation), shifted to credit guarantees.

This owed in part to the fact that most large banks were nationalised. With the financial sector reforms initiated in the 1990s, credit guarantees have been gradually phased out and the focus of the Corporation is veering back to its core function of deposit insurance, with the objective of averting panics, reducing systemic risk, and ensuring financial stability.

International practice
The UK has just raised its deposit insurance cover from 30,000 to 50,000 pounds sterling. Ireland recently guaranteed deposits of its six largest lenders. Some countries provide unlimited coverage in response to a crisis. Malaysia, Thailand and Indonesia did so in response to the 2003 crisis. Some countries, such as Japan and Mexico, had unlimited coverage, which was revoked after the crisis seemed to have abated.

The US is actively debating raising the limit from $100,000 to $250,000. Even with the recent increase in the limit of the deposits in various countries, a lot of deposits fall outside the safety net. Britain’s new limit will still leave about two-fifths of the cash in deposits uninsured.

America’s proposed change would do no more than reduce the part of the deposit base that is unprotected from 38 per cent to 27 per cent. The idea of a quarter or more of a big bank’s deposit base being wiped out is politically unthinkable. Indeed, when Wachovia, America’s fourth-largest commercial bank by assets, was rescued this week, the FDIC created a structure that protected all deposits. It has done so with other banks, too.

It is time the RBI and the Centre took another look at deposit insurance in India. When the Government has increased the annual income level of the ‘creamy layer’ to Rs 4.5 lakh, it is imperative that the RBI increases the limit to at least Rs 500,000 as the minimum deposit amount to be covered by insurance in the current context.

Raise the limit
The Government has to review, like other countries, an increase the insurance limits to avoid the flight of money too. India should also consider introducing optional co-insurance that is available in a few countries that will offer depositors the option to purchase additional cover by collecting additional premium from the depositors over the statutory limit of the deposit’s tenure, so that the tax-payers alone are not saddled with paying for the banks’ and big depositors’ possible bailouts in the future.

It was also felt that an additional purpose of a deposit insurance scheme would be to increase the confidence of depositors in the banking system and facilitate the mobilisation of deposits to enable growth and development. The traditional criticism of such insurance, however, is that it may indirectly encourage banks to take more risk. Hence, it is imperative on the RBI to ensure that the banks do not speculate, like the financial institutions in the US did.

Even after collecting the premium on all deposits over the set limit, it may not, under all circumstances, be possible to cover all kinds of bankruptcy. Even in the US, FDIC’s available funds, including untapped credit lines from the Treasury, are equivalent to just 1.5 per cent of total deposits of commercial banks. Ultimately, if the public thinks that multiple failures of big banks are likely, only the government can offer a credible guarantee to infuse confidence in the banking system.

Source: The Hindu Business Line

CABINET DEFERS DECISION ON FDI CAP IN INSURANCE

New Delhi: The Union Cabinet deferred a decision on the much-awaited insurance law amendment Bill that aims to raise the foreign direct investment (FDI) cap for insurance companies from 26 per cent to 49 per cent. No decision was taken as Finance Minister P Chidambaram was not present at the meeting.

The Insurance Laws (Amendment) Bill is expected to be tabled in the coming Parliament session, which begins on Friday. The Bill also seeks to allow promoters to hold majority stakes in insurance companies and permit public sector general insurance companies to raise capital from the market to finance their expansion.

The reforms, planned by the government long back, were put on the back-burner due to the opposition by the Left parties, which were giving outside support to the UPA government. The Bill is likely to be taken up by the Cabinet soon.

Briefing the media, Sibal said the Cabinet Committee of Economic Affairs (CCEA) approved the creation of institutional infrastructure for hospitality and tourism education. The approval would entail strengthening of existing hotel management and food craft institutes and result in creation of 19 new hotel management centres and 25 food craft institutes during the 11th Plan period (2007-12).

The CCEA also approved an incentive bonus of Rs 50 per quintal on paddy, over and above the minimum support price (MSP), for the entire kharif marketing season. The decision will effectively increase the support price of paddy procured for the central pool to Rs 900 per quintal, and partially address the concerns of farmers’ organisations, which were demanding a hike in the MSP.

Source: Asian Age, Business Standard

HYBRID CAPITAL BENEFIT LIKELY FOR INSURERS

New Delhi: Insurance companies may soon be allowed to raise capital through several means which are normally used by commercial banks. The government is considering an amendment in the insurance law for allowing insurers to have hybrid capital. This would help the insurers meet their expansion plans while fulfilling solvency norms. The new norms would be applicable for both public and private insurers. “We are planning to allow insurance companies to raise resources through hybrid capital so as to help them meet their capital requirements,” a senior finance ministry official said, adding there was huge capital requirement for expansion of the life insurance business and the government needed to facilitate the expansion plans of the companies. Almost all the life and non-life insurers are in the need of additional capital for meeting their requirements. In fact, insurance companies were demanding that the government and the regulator should either ease the solvency norms or allow them to raise resources through multiple sources. Presently, Insurance Regulatory and Development Authority (Irda) norms require an insurance company to keep solvency margin at 150%. Insurers wanted it to be brought down to 100%. Funds injected by promoters for adhering to the solvency norms go into the insurer’s shareholders funds. Solvency of an insurance company corresponds to its ability to pay claims. An insurer is considered insolvent if its assets are not adequate (over indebtedness) or cannot be disposed of in time (illiquidity) to pay the claims. A 100% margin means that insurers are adequately placed to pay claims. The capital requirement of non-life insurers has also gone up substantially in the recent past. They need additional capital with de-tariffing of the fire, marine and engineering insurance products, which hitherto proved to be quite profitable.

Source: The Economic Times

INSURANCE PREMIUM FROM NEW POLICIES TAKES A 23% KNOCK

New Delhi: The Insurance sector in India has seen a significant slowdown in growth in the first quarter of the current fiscal. Premium from new policies has fallen 23%, according to the latest Insurance Regulatory and Development Authority (IRDA) report.
The figures show that the industry witnessed 15% growth between April and June this financial year as against 38% in the corresponding period last year. The total Annual Premium Equivalent (APE), which depicts new premium coming in every year, stood at Rs 9,611 crore during the first three months of FY- 09. LIC has witnessed a decline of 27% in its APE from Rs 4,927 crore in April-June last year to Rs 3,575 crore this year.
The slowdown in the economy and high inflation have forced banks to make lendings dearer, which inturn have dampened investments in the insurance sector. Insurance is not a top priority when it comes to consumer spends or investments. With less disposable income, insurance sales would be tougher. “With the uncertainty in the economy, people are spending less on insurance products which are considered major tax saving tools,” said a source. “Although the industry hasn’t faced any negative growth so far, there certainly has been a deceleration of growth in the industry,” said ICICI Prudential managing director Shikha Sharma.
According to sources, it is not just the sale of life and general insurance products which has been impacted by the volatility in the stock market. The demand for Unit Linked Plans (ULIP) also witnessed a drop in demand. The industry has seen a marginal shift away from ULIP to traditional products. “It is just a temporary phase. ULIPs will continue to be the preferred alternative for investors who are not interested in the shortterm market fluctuation,” said Ms Sharma.
Last year, the insurance sector witnessed about a 100% growth. This is even as the insurance perpetration in India is still at a low level at 4.1% of the GDP as compared to 8-10% of the GDP in some of the developed economies and the Asian markets. So far, 24% of the Indian households own life insurance policies and the average sum assured per household is just Rs 1,14,450 among the owner households.

Source: The Economic Times

IRDA REVISES INVESTMENT NORMS FOR INSURERS

Hyderabad: The Insurance Regulatory and Development Authority (IRDA) has amended the regulations on investment of insurance companies. The definition of investments in infrastructure by the insurance companies is now aligned with current norms prescribed by the Reserve Bank of India. This would “bring in better cohesion and facilitate smooth flow of funds into this important sector”, Mr C.R. Muralidharan, Member (Finance and Investments), IRDA said in a release.

The revised regulations also extend the exposure norms to investments of Unit Linked Insurance Plans (ULIPs) premium to enhance policy-holders’ protection and rationalise the norms for both private and public insurers.

The insurers could now adopt rating criteria as prescribed for categorising certain instruments as approved investments by the authority, including rated mortgage backed securities that can be reckoned towards the housing sector for the purpose of pattern of investment, the release said.

The aim of the changes is to bring more flexibility to the insurers, address certain aspects of risk management in ULIP business and investment management in general, among others, it added.

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

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

NEW NORMS TO DIVERSIFY INSURANCE COS RISK

Hyderabad/Mumbai: Insurers investing in initial public offerings (IPO) of private sector companies will enjoy more freedom that could help policy holders garner higher returns from equities post-listing.
They can also invest in fixed-income instruments such as mortgage-backed securities (MBS) and bonds floated by developers of SEZs. Insurers will get greater leeway in their investments in mutual funds and venture funds as well.
Insurance regulator Irda on Friday notified major changes in the investment norms for insurers that will help companies diversify risks and lower the strain on capital. For policy holders, it would also mean higher yield on investments.
“The new regulations provide more flexibility to insurers that will help generate better returns. The control framework has also been tightened as a result of which risk management will be more robust,” ICICI Prudential Life Insurance chief investment officer Puneet Nanda said. The control framework includes exposure limits that are more conservative than those applicable to mutual funds.
Currently, insurers can invest in an IPO of a private sector company if the minimum issue size is Rs 500 crore. The amount is significantly lower at Rs 100 crore for investment in IPOs of public sector companies. The regulator has now fixed a uniform minimum issue size of Rs 200 crore.
However, safeguards are in place to ensure that companies maintain their solvency margins and are able to pay claims to consumers. The investment in equity shares will have to comply with the prudential and exposure norms . Insurance companies can invest up to 10% of the face value of the company or 10% of their fund size as application money. In a choppy market, the changes will ensure that investments are made only in good quality paper,” CIO of a private insurance company said.
The investment basket for insurers has also been widened to include MBS-structured loan instruments where cash flows from home loans are pooled together and converted into marketable securities. MBS will qualify as investments under the housing sector, but subject to industry exposure norms. This means insurance companies can only invest up to 10% of their portfolio in MBS under the approved investment category.
They can also invest in bonds of SEZ developers, with Irda aligning the definition of infrastructure with that of the banking regulator. The regulations will make investments for life insurers, who have Rs 8,00,000 crore assets under management. The housing finance and infrastructure finance industry will also benefit from the regulations that allow for investments in securitised paper from these sectors.
The insurers’ investment in liquid mutual funds will fall under approved investments. However, the instruments should not be used as long-term investments. They can be a maximum 5% of their investment portfolio in liquid mutual funds. The fund size is Rs 50,000 crore for a life company and Rs 2,000 crore for a nonlife company. “The new norms provide more clarity on investments in mutual funds,” a senior insurance industry official said.
It has also aligned the exposure norms of public and private sector insurers. This means LIC can invest only 10% of its portfolio in a single company against 30% earlier. For the first time, exposure norms have been made mandatory for unit-linked insurance plans (Ulip), which are akin to mutual funds in design and have an added insurance cover. The move is aimed at mitigating the risks arising from investments in a few companies.
The investment norms for insurers are stipulated in the insurance legislation. Now, an overhaul has been undertaken without taking recourse to legislative amendments.
At present, life insurance companies are allowed to invest 50% of their investible assets in government and other approved securities. Additionally, they can invest at least 15% in infrastructure instruments that qualify as approved instruments.

Source: The Economic Times

BUY YOURSELF A REAL INSURANCE COVER

Mumbai: A popular life insurance advertisement shows a husband asking his wife, “Mere bina jee paogi tum?” when she wants him to sign papers subscribing to a life insurance policy.

The wife, taken aback, replies: “Nahin.” “What will you do with all the money you will get from the life insurance in case I die?” he asks again. She then makes him understand that his signing the papers would guarantee their daughter’s education, his retirement and their overall future. “Sab guarantee matlab no tension aur tension ke bina aadmi zyaada jeeta hai na? Toh apni lambi umar ke liye... ...sign kar do,” she says. The husband signs the papers with an ironic remark: “Yaani ki lambi umar tak jhelna padega tumhe.”

The underlying theme in most life insurance advertisements is more or less similar.
As Tyler Cowen, an economist at George Mason university in the US, writes in the book, Discover your Inner Economist - Use Incentives to Fall in Love, Survive Your Next Meeting and Motivate Your Dentist, “Often, buying insurance is about investing in a story about who we are and what we care about; insurance salesmen have long recognised this fact and built their pitches around it.”

A recent insurance advertisement, which is very different from the typical life insurance advertisements, has the ‘thinking’ woman’s sex symbol, talking about people suffering from - K.I.L.B or kam insurance lene ki bimari. Never before has an insurance advertisement talked about the real problem so directly.

Most of us do not have the right level of life insurance cover. And who is to be blamed for this? To some extent our ignorance and to a large extent, life insurance companies and their agents, who are more interested in selling investment products masquerading as insurance as these fetch higher margins.

That explains why pure insurance covers (or term insurance as it is popularly known) forms a very minuscule percentage of the total amount of life insurance being sold in the country.

The first financial decision that any working professional who has a dependant family should take is get himself is a term insurance policy. In a term insurance policy, in case of death of the policyholder during the term of the policy, the nominee gets the ‘sum assured’ (or the life cover). But if the policyholder survives the period of the policy, he does not get anything.

One reason people don’t like term insurance is the fact that if they were to survive the term of the policy, they feel, the premium paid is wasted. However, what they don’t realise is that they are ‘insuring’ themselves by paying a premium and not investing. Term plans have the lowest premium among all the different insurance plans. And as we shall see, if the individual calculates the right amount of insurance cover and opts for it, the cheapest way to get it is by buying a term insurance cover.

So, how is the right amount of insurance cover calculated?

A thumb rule going is that the insurance cover of an individual should be at least 5-7 times his annual income. Going by this, if a 30-year-old earns Rs 6 lakh per annum, he should have an insurance cover of Rs 42 lakh. But this approach, though better than having no insurance cover at all, is not the only or the best way to approach the problem.

Another way to calculate the right amount of insurance cover is the human life approach. Under this, someone earning Rs 6 lakh per year is taken to be earning Rs 50,000 per month. Assume that his own expenditure per month is at Rs 10,000. The remaining Rs 40,000 goes towards meeting the family expenditure and savings. If something were to happen to him, his family, which is dependant on him, would need Rs 40,000 per month to maintain a similar standard of living. Now, to earn an income of Rs 40,000 per month at a rate of return of 8% per year, he would require an investment of Rs 60 lakh, which is the amount of insurance cover he should have. Thus, had he followed the thumb rule, he would have been underinsured.

The human life approach to calculating the amount of insurance cover is also not perfect. It does not take into account the rate of inflation. A term insurance cover of Rs 60 lakh for a period of 35 years for a 30-year-old would involve a premium of around Rs 23,000 per year. On the other hand, an endowment policy with a similar cover would require a premium payment of nearly Rs 1.6 lakh per annum, which is seven times that and clearly beyond the means of someone who earns Rs 6 lakh per year.

The other thing to keep in mind is to get a term cover for as long as possible. If in the example taken above the individual had taken a policy for 25 years, he would have needed another policy once this policy expired. At 55, he would have found it very difficult to get an insurance cover and even if he did, he would have to pay an exorbitant premium for it.

Source: DNA