Saudi Minister of Commerce Dr Hashim Yamani has approved the establishment of a Saudi-Indian cooperative insurance company.
The joint stock company is being floated with a base capital of 100 million Saudi riyals.
The founders of the Riyadh-based company have so far subscribed for 6 million shares. It will be managed by a nine-member board of directors, appointed by the company's general assembly.
The approval of the establishment of the company comes in line with the state's policy which aims at broadening the economic base and enabling the private sector to positively contribute to the process of economic development in the country
source:Financial Express
Thursday, July 26, 2007
Insurers face valuation hurdles
Kolkata: Call it the ‘real value’. Even as politics dogs the opening up of the insurance sector, the issue of valuation - that will determine the buying or selling of strategic stakes - is proving to be contentious.
This is more so since none of the insurance companies in the country are listed.
Increasing the foreign direct investment (FDI) cap in insurance from 26 per cent to 49 per cent is slated to infuse additional capital of around Rs 4,000 crore, either by buying out the Indian promoter’s stake or inducing fresh capital.
But as the frustration builds up, with the government yet to take a call and insurance companies not being listed, a latent discontent among different shareholders on the valuation of their respective businesses cannot be ruled out.
With most insurers, particularly life companies, exhibiting phenomenal growth in recent times, valuation is likely to emerge as perhaps the most critical aspect in unfolding the real value of the company and the relationship among the shareholders.
“Valuations for insurers are increasing rapidly and this will have an impact on the capital required to buy a stake in the future and on existing JV arrangements.
There could be disputes on valuations as different shareholders would cite different valuations,” Bert Paterson, CEO, India and Sri Lanka, Aviva said.
“We are all strategic investors and are betting big business from life - hence getting the best returns for exiting or giving up some stake is very important.
While it is early to predict what will happen, there could be arguments over the price of shares if the company is not listed.
The buyer may feel that the valuation is much lower, whereas, we as one of the Indian partners would feel the opposite,” said a strategic investor with one of the insurance companies, who did not wish to be named.
Almost echoing the same feeling, T V Ramanathan, managing director and chief executive officer, Exide Industries, which holds a 50per cent stake in ING Vysya Life Insurance, said: “If the sector sees an increase in FDI cap, there is no compulsion to sell off our stake. Valuations are very important”.
“Valuation of a life insurer essentially takes into account the embedded value, which is a combination of the NAV or book value and the in-force value along with the goodwill of a company.
In-force value is subjective and takes into account discounting of future cash flows that the current portfolio would receive,” Jean Francois Izac, director, mergers and acquisitions, Aviva said.
While most companies point out that the underlying agreement will spell the later course of action, it is for time to tell whether things will remain as they are now.
According to Merrill Lynch, the best valuation of Indian companies is assessing them on the basis of a multiple to their new business achieved profit (NBAP), which apparently is the only valuation tool that can be applied to Indian insurance companies.
NBAP is the present value of the profits arising from new business during the year.
“Although the embedded and appraised value methods are probably the best traditional measures of valuing life insurers over their life cycle, these measures cannot be applied to Indian insurers at this stage as most of them are at an early stage of their life cycle and even more importantly are still exhibiting exceptionally strong growth rates,” a Merrill Lynch report said.
Source: DNA Money
This is more so since none of the insurance companies in the country are listed.
Increasing the foreign direct investment (FDI) cap in insurance from 26 per cent to 49 per cent is slated to infuse additional capital of around Rs 4,000 crore, either by buying out the Indian promoter’s stake or inducing fresh capital.
But as the frustration builds up, with the government yet to take a call and insurance companies not being listed, a latent discontent among different shareholders on the valuation of their respective businesses cannot be ruled out.
With most insurers, particularly life companies, exhibiting phenomenal growth in recent times, valuation is likely to emerge as perhaps the most critical aspect in unfolding the real value of the company and the relationship among the shareholders.
“Valuations for insurers are increasing rapidly and this will have an impact on the capital required to buy a stake in the future and on existing JV arrangements.
There could be disputes on valuations as different shareholders would cite different valuations,” Bert Paterson, CEO, India and Sri Lanka, Aviva said.
“We are all strategic investors and are betting big business from life - hence getting the best returns for exiting or giving up some stake is very important.
While it is early to predict what will happen, there could be arguments over the price of shares if the company is not listed.
The buyer may feel that the valuation is much lower, whereas, we as one of the Indian partners would feel the opposite,” said a strategic investor with one of the insurance companies, who did not wish to be named.
Almost echoing the same feeling, T V Ramanathan, managing director and chief executive officer, Exide Industries, which holds a 50per cent stake in ING Vysya Life Insurance, said: “If the sector sees an increase in FDI cap, there is no compulsion to sell off our stake. Valuations are very important”.
“Valuation of a life insurer essentially takes into account the embedded value, which is a combination of the NAV or book value and the in-force value along with the goodwill of a company.
In-force value is subjective and takes into account discounting of future cash flows that the current portfolio would receive,” Jean Francois Izac, director, mergers and acquisitions, Aviva said.
While most companies point out that the underlying agreement will spell the later course of action, it is for time to tell whether things will remain as they are now.
According to Merrill Lynch, the best valuation of Indian companies is assessing them on the basis of a multiple to their new business achieved profit (NBAP), which apparently is the only valuation tool that can be applied to Indian insurance companies.
NBAP is the present value of the profits arising from new business during the year.
“Although the embedded and appraised value methods are probably the best traditional measures of valuing life insurers over their life cycle, these measures cannot be applied to Indian insurers at this stage as most of them are at an early stage of their life cycle and even more importantly are still exhibiting exceptionally strong growth rates,” a Merrill Lynch report said.
Source: DNA Money
‘Insurance industry will be hot bed for M&A deals’
Hyderabad: In a development that can impact the consolidation aspects of Indian life insurance industry, the valuation of industry players is increasing rapidly and will impact the capital requirement of stake holders in the existing joint venture arrangements, according to Jean Francois Izac, Director (Mergers & Acquisitions), Aviva Plc.
“Going by the current trends, Indian insurance industry will be hot bed for M&A deals once the upper ceasing on foreign direct investment is relaxed or removed,” Izac told Business Line in Prague recently.
Basic parameters
The four basic parameters of insurance value chain - distribution, risk management, administration and asset management were strong in India taking up the valuations of different companies, he said.
“Though the methodologies of valuation are not uniform, globally fundamental analysis (of discounted dividends, qualitative issues, and embedded value/appraisal value including actuarial analysis) and reality check (of comparables, competition, precedent transactions and ROI) are being taken up. The fact is that the Indian industry is staging impressive growth,” he said.
Citing a Merrill Lynch source, Izac said by FY09, the valuation of ICICI Prudential was currently at $7.2 billion, Bajaj Allianz at $3.6 billion, SBI Life at $2.3 billion HDFC Standard at $2.2 billion and Max New York Life at $1.3 million.
“While the figures are more indicative, they give a hint of what is in store for the industry ahead,” he observed.
FDI norms
Elaborating further, he said on the expected re-jig of FDI norms by the Government soon, the companies were focusing more on valuation procedures.
In countries such as the UK, the valuation was increasingly done in the embedded value method and there would be lot of action in India on this front, he added.
On Aviva’s M&A plans, Iazc said the company had been adopting joint venture and acquisition route globally.
“We are open to acquisitions in Europe,” he added.
Source: Business Line
“Going by the current trends, Indian insurance industry will be hot bed for M&A deals once the upper ceasing on foreign direct investment is relaxed or removed,” Izac told Business Line in Prague recently.
Basic parameters
The four basic parameters of insurance value chain - distribution, risk management, administration and asset management were strong in India taking up the valuations of different companies, he said.
“Though the methodologies of valuation are not uniform, globally fundamental analysis (of discounted dividends, qualitative issues, and embedded value/appraisal value including actuarial analysis) and reality check (of comparables, competition, precedent transactions and ROI) are being taken up. The fact is that the Indian industry is staging impressive growth,” he said.
Citing a Merrill Lynch source, Izac said by FY09, the valuation of ICICI Prudential was currently at $7.2 billion, Bajaj Allianz at $3.6 billion, SBI Life at $2.3 billion HDFC Standard at $2.2 billion and Max New York Life at $1.3 million.
“While the figures are more indicative, they give a hint of what is in store for the industry ahead,” he observed.
FDI norms
Elaborating further, he said on the expected re-jig of FDI norms by the Government soon, the companies were focusing more on valuation procedures.
In countries such as the UK, the valuation was increasingly done in the embedded value method and there would be lot of action in India on this front, he added.
On Aviva’s M&A plans, Iazc said the company had been adopting joint venture and acquisition route globally.
“We are open to acquisitions in Europe,” he added.
Source: Business Line
Why do ULIPs have such a high upfront charge?
Mumbai: Jignesh Mehta paid a premium of Rs 20,000 to invest in a unit-linked insurance plan (ULIP) in October 2005. At the end of one year, when he received the policy statement, he was surprised to see that the total value of his investment was just Rs 9,075. He wondered where the balance Rs 10,925 had gone.
ULIPs are insurance policies which club insurance and investment. Usually, an individual taking a ULIP has 4-6 choices, ranging from funds investing 100 per cent in equity to those investing 100 per cent in debt securities.
Other than this, the policy-holder gets an insurance cover as well, for which the insurance company levies a monthly charge.
What Mehta did not know is that the entire Rs 20,000 he had invested would not be invested.
There were expenses to be paid. In the first year of his ULIP policy, the insurance company had made an allocation charge of 25 per cent of the premium paid. What this meant was that of the Rs 20,000 he had paid, only Rs 15,000 was invested.
Other outgoes, like policy administration charge, and fund management charge, had ensured that instead of his money growing in value, it had shrunk.
The premium allocation charge in the first year of the policy varies from 15 per cent to 71 per cent of the premium paid, depending on the ULIPs chosen. So, why do ULIPs have such a high upfront charge?
“Historically, insurance commissions have always been high. The insurance industry tends to justify this practice, using the defence that selling insurance is tougher than selling other financial products.
While this itself is arguable, in any case, since these commissions are deducted from the investment, it is the investor who suffers,” says Sandeep Shanbhag, an investment consultant.
Financial planner Amar Pandit adds: “It’s a question of who bells the cat, and if an insurance company comes up with a low-cost product, they fear losing out on business.”
Investment experts complain it’s not easy to choose the best ULIP. “When I need to advise a client on which mutual fund to invest, I can check websites to know the best-performing schemes over three to five years.
But there is nothing like that available for ULIPs,” says a relationship manager with a private sector bank.
“Also, since the expense structure of each ULIP is different, any comparison between the performances of different Ulips is not possible,” says Shanbhag.
So, why do people invest in ULIPs? Last year more than Rs 31,000 crore came into ULIPs, which now account for around 56 per cent of the total new premia coming into insurance policies.
“The idea of a packaged product that offers both equity returns and insurance seduces investors,” says Shanbhag.
“The primary reason why people buy ULIPs is because of mis-selling. Agents tell people they have the option of paying a premium for only three years, when the actual term of most ULIPs is at least 10 years. It works as a good selling point,” says an investment advisor who did not wish to be identified.
Most ULIPs have a cover continuance option, which essentially ensures that even if the individual is not able to continue paying premia anytime after the first three years, the policy continues.
The insurance agents, though, have turned this into a selling point, giving an impression to investors that they have an option to stop paying premia after three years, which is really not the case.
An investor who decides to stop paying premia after three years hardly benefits; after three years, the expenses are less and more of the premium gets invested.
With a lower amount being invested, a lower initial corpus can have a huge impact on the corpus that the investor ultimately accumulates.
But there’s another reason why insurance agents tell their clients that they can stop paying premia after three years: they can sell another ULIP to them after three years and hope to make a greater commission.
If a client stays on with his/her ULIP, the agents make a much lower commission of around 5 per cent of the premium,” says an investment advisor.
“But companies are trying to curb mis-selling of this sort,” says R. Krishnamurthy, managing director of Watson Wyatt Insurance Consulting.
“One of the players has made it mandatory for the investor to sign a document, stating that he intends to invest for a longer term. However, this practice is not widely prevalent.”
Also, getting out of an ULIP, if it has not been performing well, can be a costly affair. If your tax- saving mutual fund is not performing, you can simply stop investing and move onto another scheme.
In case of ULIP, if you want to stop investing after three years and move onto another scheme, you will have to bear the high premium allocation charge of the new Ulip in the first three years.
To the detractors of ULIP, insurance companies keep pointing out that their expense structure over a longer period of 10-15 years works out to be much lower than that of a mutual fund. Hence over that period, ULIPs are more likely to perform better than mutual funds.
“In single premium products, which comprise 50 per cent of ULIPs sold, the commission is just 2 per cent. However, the cost is a little higher in regular premium products. But, it would even out in 8-10 years.
Investors need to understand that Ulips are for longer-term periods,” says SV Mony, secretary of the Life Insurance Council. But investment experts don’t seem to agree.
“Lower expenses have to match up with performance. The basic assumption that insurance companies make is that ULIPs and mutual funds will give similar returns. Actually, mutual funds have outperformed an average ULIP by a huge margin, and there is no way they can catch up in 10-15 years,” says Pandit.
“It is too early to compare the ULIP returns with mutual funds as Ulips have been launched only for 3-4 years now. Though we would not like to comment on the industry performance, our unit-linked funds have performed extremely well and are in-line with the performance of mutual funds, says Sanjay Tripathy, head marketing at HDFC Standard Life Insurance.
So what is the way out? It would be ideal to separate your insurance and investment decisions.
Investors desiring both insurance and investment should buy each product individually and avoid any combination thereof. Whenever insurance is combined with investment, it produces sub-opitmal results. So one should always buy term insurance and invest the rest of the funds in a pure investment product of choice," says Shanbhag.
Source: DNA Money
ULIPs are insurance policies which club insurance and investment. Usually, an individual taking a ULIP has 4-6 choices, ranging from funds investing 100 per cent in equity to those investing 100 per cent in debt securities.
Other than this, the policy-holder gets an insurance cover as well, for which the insurance company levies a monthly charge.
What Mehta did not know is that the entire Rs 20,000 he had invested would not be invested.
There were expenses to be paid. In the first year of his ULIP policy, the insurance company had made an allocation charge of 25 per cent of the premium paid. What this meant was that of the Rs 20,000 he had paid, only Rs 15,000 was invested.
Other outgoes, like policy administration charge, and fund management charge, had ensured that instead of his money growing in value, it had shrunk.
The premium allocation charge in the first year of the policy varies from 15 per cent to 71 per cent of the premium paid, depending on the ULIPs chosen. So, why do ULIPs have such a high upfront charge?
“Historically, insurance commissions have always been high. The insurance industry tends to justify this practice, using the defence that selling insurance is tougher than selling other financial products.
While this itself is arguable, in any case, since these commissions are deducted from the investment, it is the investor who suffers,” says Sandeep Shanbhag, an investment consultant.
Financial planner Amar Pandit adds: “It’s a question of who bells the cat, and if an insurance company comes up with a low-cost product, they fear losing out on business.”
Investment experts complain it’s not easy to choose the best ULIP. “When I need to advise a client on which mutual fund to invest, I can check websites to know the best-performing schemes over three to five years.
But there is nothing like that available for ULIPs,” says a relationship manager with a private sector bank.
“Also, since the expense structure of each ULIP is different, any comparison between the performances of different Ulips is not possible,” says Shanbhag.
So, why do people invest in ULIPs? Last year more than Rs 31,000 crore came into ULIPs, which now account for around 56 per cent of the total new premia coming into insurance policies.
“The idea of a packaged product that offers both equity returns and insurance seduces investors,” says Shanbhag.
“The primary reason why people buy ULIPs is because of mis-selling. Agents tell people they have the option of paying a premium for only three years, when the actual term of most ULIPs is at least 10 years. It works as a good selling point,” says an investment advisor who did not wish to be identified.
Most ULIPs have a cover continuance option, which essentially ensures that even if the individual is not able to continue paying premia anytime after the first three years, the policy continues.
The insurance agents, though, have turned this into a selling point, giving an impression to investors that they have an option to stop paying premia after three years, which is really not the case.
An investor who decides to stop paying premia after three years hardly benefits; after three years, the expenses are less and more of the premium gets invested.
With a lower amount being invested, a lower initial corpus can have a huge impact on the corpus that the investor ultimately accumulates.
But there’s another reason why insurance agents tell their clients that they can stop paying premia after three years: they can sell another ULIP to them after three years and hope to make a greater commission.
If a client stays on with his/her ULIP, the agents make a much lower commission of around 5 per cent of the premium,” says an investment advisor.
“But companies are trying to curb mis-selling of this sort,” says R. Krishnamurthy, managing director of Watson Wyatt Insurance Consulting.
“One of the players has made it mandatory for the investor to sign a document, stating that he intends to invest for a longer term. However, this practice is not widely prevalent.”
Also, getting out of an ULIP, if it has not been performing well, can be a costly affair. If your tax- saving mutual fund is not performing, you can simply stop investing and move onto another scheme.
In case of ULIP, if you want to stop investing after three years and move onto another scheme, you will have to bear the high premium allocation charge of the new Ulip in the first three years.
To the detractors of ULIP, insurance companies keep pointing out that their expense structure over a longer period of 10-15 years works out to be much lower than that of a mutual fund. Hence over that period, ULIPs are more likely to perform better than mutual funds.
“In single premium products, which comprise 50 per cent of ULIPs sold, the commission is just 2 per cent. However, the cost is a little higher in regular premium products. But, it would even out in 8-10 years.
Investors need to understand that Ulips are for longer-term periods,” says SV Mony, secretary of the Life Insurance Council. But investment experts don’t seem to agree.
“Lower expenses have to match up with performance. The basic assumption that insurance companies make is that ULIPs and mutual funds will give similar returns. Actually, mutual funds have outperformed an average ULIP by a huge margin, and there is no way they can catch up in 10-15 years,” says Pandit.
“It is too early to compare the ULIP returns with mutual funds as Ulips have been launched only for 3-4 years now. Though we would not like to comment on the industry performance, our unit-linked funds have performed extremely well and are in-line with the performance of mutual funds, says Sanjay Tripathy, head marketing at HDFC Standard Life Insurance.
So what is the way out? It would be ideal to separate your insurance and investment decisions.
Investors desiring both insurance and investment should buy each product individually and avoid any combination thereof. Whenever insurance is combined with investment, it produces sub-opitmal results. So one should always buy term insurance and invest the rest of the funds in a pure investment product of choice," says Shanbhag.
Source: DNA Money
Life Insurance Corp raises stake in IPCL
Mumbai, July 9: Indian Petrochemicals Corp. Ltd. said on Monday Life Insurance Corp. of India has acquired a further 2.03 percent stake in the company to raise its holdings to 13.39 percent.
Shares in IPCL were trading down 0.3 percent at 340 rupees in the Mumbai market.
Source: Financial Express
Shares in IPCL were trading down 0.3 percent at 340 rupees in the Mumbai market.
Source: Financial Express
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