INSURANCE PLAYERS NOW SEE SCOPE FOR MORE FDI

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

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

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

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

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

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

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

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

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

DISINVESTMENT PROCESS MAY GAIN SPEED

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

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

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

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

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

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

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

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

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

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

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

Source: The Hindu Business Line

IRDA PANEL SEEKS TO CURB ULIP SALES

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

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

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

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

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

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

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

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

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

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

Source: NW18, Business Standard

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

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

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

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

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

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

Source: Business Standard

HIGHER FDI IN INSURANCE TO BOOST ECONOMY: MOODY’S

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