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

HSBC TO MANAGE UP TO 33% OF EPFO MONEY

New Delhi: The Employees’ Provident Fund Organisation finalised the fund allocation to the four successful bidders in an order that is inversely proportional to their financial bids. The lowest bidder HSBC will get the highest amount to manage followed by ICICI Prudential AMC and then Reliance Capital AMC and State bank of India.

“We have taken a decision on who will manage which fund and accordingly the funds will be allocated,” said a government official close to the development. The annual incremental accretion amounts approximately to Rs 30,000 crore. It is divided into two funds — the pension money and the provident fund money.

The management has decided to give the full pension money amounting between Rs 9,000 crore and Rs 10,000 crore to HSBC, said the official. ICICI Prudential AMC will get 40 per cent of the balance Rs 20,000 crore in the provident fund and 30 per cent each will go to Reliance Capital AMC and State Bank of India.

The funds will be allocated to the fund houses by September 1, he added.
Earlier, HSBC offered to manage the fund at a fee of 0.0063 per cent followed by ICICI Prudential AMC’s quote of 0.0075 per cent. Reliance Capital and SBI quoted their bids at 0.01 per cent.

Source: Hindustan Times

INSURANCE SCHEMES ARE NOT IN THE PINK OF HEALTH

New Delhi: How do you provide health care to handloom weavers, who occupy among the poorest segments in the unorganised sector? There are 6.5 million of them scattered across the country and are not always fixed in their occupation.

For the textile ministry that oversees their welfare, the answer was insurance cover — with a private company underwriting the risk. It was seen as a daring move when the scheme was launched three years ago, and has since become something of a trendsetter.
The Health Insurance Scheme for Weavers, launched in 2005, has a number of firsts to its credit. It provides medical assistance for a wide range of common ailments, which means Out Patient Department (OPD) is covered, and also allows beneficiaries to use alternative systems of medicine.

According to an official of ICICI Lombard, which put in the winning bid, the scheme is path-breaking and not just because of its geographical spread. Says Sanjay Pande, head of the insurance firm Financial Inclusion Solutions Group, which deals with government schemes: “There were so many firsts in the scheme that we were petrified.”

Progress, however, has been slow. So far 1.77 million weavers have been covered, but, given the challenges, it is “a hugely successful scheme”, claims Meenu Kumar, chief enforcement officer with the Handloom Development Commissioner’s office, who oversees the project. Among the tougher challenges: selling the scheme to the weavers and putting together a network of rural clinics and hospitals to meet the requirements of the scheme where 70 per cent of the treatment is cashless.

Because of malpractices and shortcomings, close to half of the 3,500 hospitals and clinics that were empanelled have been de-listed. A more controversial issue though is the amount of the insurance cover: beneficiaries are entitled to treatment amounting to just Rs 15,000, a pittance compared to what other government schemes offer. Textile ministry officials tend to bristle at such criticism, with one ministry functionary claiming that “the amount may seem very little but is in fact a big improvement for weavers”. A comparative analysis of health insurance schemes shows that the premium is by far the highest in the weavers’ scheme compared to the benefits offered.

Yeshasvini, the pioneering scheme launched in 2003 for cooperative farmers in Karnataka, charges just Rs 120 annually for insurance cover of Rs 1,00,000. Farmers are entitled to treatment for everyday problems in the rural areas, such as snake bites, electric shocks and farm accidents, and for sophisticated heart surgeries at the best cardiac hospitals in the state. S R Naik, CEO of the Yeshasvini Cooperative Farmers Healthcare Trust, claims with some justification that “there is no such scheme in the whole world”.

For one, it does not have an insurance company underwriting the risk and, for another, it does not use a single rupee from the premium for establishment costs. A small room with just a couple of tables and cupboards is the office of the trust where Naik, a retired official of the department of cooperatives, runs the show, backed by the machinery of the department and a third party administrator (TPA), Family Health Plan Ltd, which implements the scheme.

The TPA is paid a flat sum of Rs 50 lakh a year. But the fact is that the scheme cannot run without government support. The subsidy has been increasing sharply and this year the Karnataka government’s contribution (Rs 40 crore) has outstripped the premium collected so far (Rs 33.45 crore).

Numbers are crucial for health insurance schemes to remain viable. Pande maintains that ICICI Lombard is yet to make money on the weavers’ scheme but hopes to do so when it reaches critical mass. Fortunately for the company, it was able to clinch the subsequent tender (2007-09) also, and the higher volumes are expected to provide profits in the fourth year of operations.

Companies though are willing to pay a price for their learning experience. ICICI Lombard claims it lost heavily on other projects, such as the one for Punjab cooperative farmers (premium collected Rs 5.2 crore, claims paid Rs 28 crore) and in Jammu & Kashmir (premium income Rs 7.2 crore, pay-outs Rs 41 crore). Yet, it is, like other companies in the business of health insurance, jockeying hard for a piece of the action. Most of the contracts for government schemes are said to be hard-fought battles with very narrow differences in the bids.

Says R Sasi Ganapathy, chief operating officer of Star Health and Allied Insurance Co, which covers the risk for AP’s Rajiv Aarogyasri: “There are no big profits in this business just now. In Aarogyasri, we make very little money even though it’s the largest of its kind in the world. For us, it is a stepping stone because the experience is helping us to gain a foothold in other states.”

Star Health, India’s first stand-alone health insurance firm, has invested around Rs 14 crore in Aarogyasri. This may seem a large investment for a small firm but is small beer compared to the business it is expected to garner. The company has won the health insurance tender for three million state government employees in Tamil Nadu and is expecting more business from neighbouring states.

“The brand equity of Aarogyasri is very high and our costing will be tough for other companies to match,” asserts Ganapathy. All the same, it may not be a cakewalk in other states, where the lack of data could make risk-profiling difficult. The big battles will be over the labour ministry’s Rashtriya Swasthya Bima Yojana (RSBY). This is being put to tender on a pilot basis, and so far just three states have awarded contracts for some districts. There is big business in the offing as 16 other states are preparing to seek bids.

Source: Business Standard

IDBI FORTIS BRANCH IN VIJAYAWADA

Hyderabad: IDBI Fortis Life Insurance Co Ltd has opened its second branch in Andhra Pradesh in Vijayawada in addition to its branch in the State Capital. It is also planning to open four more new branches in the State during the year, Ms R.M. Vishakha, President – Bancassurance, IDBI Fortis Life Insurance Co Ltd, said after inaugurating the branch, according to a release.

Source: The Hindu Business Line

MAKEOVER TIME AT BAJAJ ALLIANZ

Kolkata: Having suffered a severe downslide in growth in premium during the first quarter of the current fiscal, Bajaj Allianz Life Insurance is going in for a rejig of its operations.

It is devising a new range of unit-linked policies to compensate for the chunk of premium that came from a category of products that were discontinued since last year. It is also looking at controlling expenses.

Bajaj Allianz grew 13% in the first quarter of the current year, one of the lowest in the industry. Although the company has the second highest market share of 12.20% in the private life space, the growth has been low compared to most of the other players in the industry.

Kamesh Goyal, CEO, Bajaj Allianz told DNA Money, “Yes, there has been a low growth, mainly on account of some categories of businesses that we have almost stopped. We are not doing single premium and hardly doing group business plans. Moreover, we have discontinued the clutch of actuarially funded products. All this contributed 40-50% of the portfolio.”

Bajaj Allianz, which has one of the largest geographical spread in the industry, may not go in for much expansion in the current year. “The greatest challenge will be to manage costs while building a market share. Currently, we are well positioned, with costs comprising 14-15% of the gross written premium. But this has to be lower in a few years. This will be done by increasing market share and increasing productivity per employee,” Goyal said.

As part of its thrust on new policies, the insurer just introduced a new unit linked plan - Fortune Plus. The company also recently launched a family floater as part of its health insurance initiatives.

Commenting on the company’s growth, Rajeev Varma, analyst with Merrill Lynch said in a recent report, “Bajaj Life’s slowdown a worry. While a concern, it is too early to take a call. We expect the growth to bounce back as it scales up distribution in the coming months.”

Enam India Research analysts Punit Srivastava and Sumit Agarwal, point out, “The company has seen a moderating growth after a high growth phase. Market share of the company has seen substantial improvement.”

Source: DNA